India To Increase Short-End Borrowing

Bonds fell yesterday and are expected to come under further pressure today after a report that the government will start selling more debt maturing in less than seven years from July to compensate states for the Goods and Services Tax shortfall. NewsRise ran a report citing a government official that India will selling additional debt from July to raise INR 1.58tn due to a shortfall in GST. Finance Minister Sitharaman had earlier said the central government will borrow 1.58t rupees on behalf of states to compensate for a revenue shortfall.

• Meanwhile there has been speculation from market participants that the RBI could hit record high sales with the 10-year benchmark bond. While increased supply would usually put upward pressure on yields, the RBI already owns over 50% of the outstanding benchmark issue which would give it greater control of the yield in the market. Last week the RBI rejected all bids for the benchmark 10-yearnote, a measure the central bank has used several times in the past and leaving the underwriters to rescue the sale.
• Elsewhere, data yesterday showed current-account deficit widened more than expected due to a widening trade gap and lower private transfers from abroad. The deficit widened to $8.13bn from a revised $2.21bn last time out. Other data showed India's fiscal deficit for the first two months of the fiscal year was INR 1.23tn compared to a target of INR 15.1tn. Markets await PMI data later in the session.