Bonds Under Pressure From Extra Borrowing

Bonds lower in early trade, yields were already under pressure after last week's auctions had to be rescued by primary dealers again. Dealers took down around half of the INR 140bn 5.85% 2030 sale, the cut-off yield for the sale was 5.9937% as a result, below the 6% line in the sand for the RBI.

• On Friday the finance minister said that India will need to borrow more in order to compensate regional governments, confirming a sources piece earlier in the week. An additional INR 1.58tn will be added to supply for this fiscal year, bringing total borrowing to INR 13.8tn. A decision on additional issuance will be taken after a consultation with the RBI, no data has been set. The 10-year yield is already close to upper tolerance limits of the RBI, the bank has enacted several measures to keep borrowing costs down such as operation twist and GSAP, it remains to be seen what other tricks the RBI has up its sleeve to combat a yield rise associated with extra issuance.
• Auction recap:

Note: Only INR 65bn of 2030 issue sold in competitive sale