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    Bond traders in India caught out by surprise fiscal flip flop

    Synopsis

    The benchmark 10-year yield was steady at 6.79 per cent after dropping four basis points earlier.

    BondAgencies
    Standard Chartered Plc expects as much as 800 billion rupees of additional debt even after adjusting for some spending cuts. It raised its 10-year yield forecast to 6.40 per cent by end-December as against 6.20 per cent earlier.
    Just when Indian bond traders were cheering the government for not resorting to big-bang spending to revive the economy, the $20 billion tax-cut boost has put them in a bind.

    Benchmark yields declined modestly after jumping 15 basis points Friday in the biggest sell off since January. A gauge of volatility for the 10-year bond rose to an eight-month high despite Finance Minister Nirmala Sitharaman allaying concerns about a near-term increase in borrowing.

    “Market participants were caught off-guard with the fiscal measures,” said Dhawal Dalal, chief investment officer for fixed income at Mumbai-based Edelweiss Asset Management Ltd. “Recent statements by the RBI and government officials had led to an impression that there was limited fiscal space available for large reforms.”

    The stimulus, which is expected to cost the government 1.45 trillion rupees in revenue, may push up the fiscal deficit to 3.9 per cent of the gross domestic product in the year to March, compared with the goal of 3.3 per cent set in July, according to a snap poll of economists by Bloomberg News.

    The deficit target will be reviewed closer to the federal budget due in February, Sitharaman told reporters Sunday. A decision on whether to borrow more than the budgeted 7.1 trillion rupees will be taken later in the financial year, she said.
    BLOOMBERGG

    The benchmark 10-year yield was steady at 6.79 per cent after dropping four basis points earlier. The 2026 note was down two basis points to 6.66 per cent. Authorities are due to announce the October-March borrowing calendar by month-end.

    Extra Debt

    “It looks like the 2H borrowing announcement will still be of 2.68 trillion rupees, albeit accelerated, keeping space for extra borrowing in February-March,” said Anindya Das Gupta, Mumbai-based managing director and head of treasury at Barclays Plc.

    Standard Chartered Plc expects as much as 800 billion rupees of additional debt even after adjusting for some spending cuts. It raised its 10-year yield forecast to 6.40 per cent by end-December as against 6.20 per cent earlier.

    The supply overhang is expected to linger despite the government’s assurance, according to ING Groep NV.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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