Underwriters rescue India bond sale again with 2H plan awaited

By Subhadip Sircar

Underwriters stepped in for the fourth time in seven weeks to rescue an auction of Indian sovereign bonds, days before the government is due to announce its plan to achieve the remainder of its record borrowing target.

Primary dealers had to buy Rs 17,860 crore ($2.4 billion) of the Rs 18,000 crore of benchmark 10-year debt offered Friday, the Reserve Bank of India said in a statement. The cutoff yield was set at 6.0095% compared with 6.03% estimated in a Bloomberg survey. The RBI doesn’t offer reasons for its decision.

This marks the end of the borrowing planned for the first half of India’s financial year, with the schedule for October-March due as early as next week. Prime Minister Narendra Modi’s government is widely expected to breach its Rs 12 lakh crore annual target as the pandemic slams an economy that was slowing even before India became home to the world’s second-largest coronavirus outbreak.

“There is no demand and the market is awaiting clarity on borrowing,” said Debendra Dash, head of fixed income at AU Small Finance Bank in Mumbai. “The RBI is signaling lower yields but it needs to be followed by strong action.”

Sovereign bonds fell after the result, with the 10-year yield rising 5 basis points to 6.04%. The 5-year yield was up 2 basis points to 5.38%.

With help from the underwriters, the central bank sold Rs 30,000 crore of bonds across tenors on Friday.

The RBI on Thursday had rejected all bids at a Rs 10,000 crore open-market bond-purchase auction, which traders said was a signal the central bank won’t accept yields rising much higher. Soon after, the RBI announced the simultaneous purchase and sale auction -- a so-called Operation Twist -- for Rs 10,000 crore on Oct. 1.

There was speculation that the central bank may be making discreet purchases on Friday of paper offered at Thursday’s OMO auction, traders said, with those bonds outperforming the benchmark note. The RBI has been making secondary market purchases, Operation Twists and giving yield signals in auctions as it seeks to keep benchmark yields anchored around 6%.