India bond yields jump as supply worries sting, stop-losses add pressure

Indian government bond yields climbed ‍on Monday, with the benchmark bond yield posting its biggest single-session rise in four months, ⁠as increased state debt supply sparked a selloff, triggering stop-losses that further intensified the pressure.

The benchmark 10-year yield ended at 6.6678%, highest since March 18, after ending at 6.6017% on Friday. ‌Bond yields rise ‌when prices fall.

“With 6.65% taken out without much effort, stop-losses have been triggered, which is leading to ‌levels that were not even imagined some time back,” trader with a state-run bank said.

“Bond yields may remain stickier on the higher side due to the fiscal fears on both the government bond as well as state debt borrowings, and ​other factors such as muted demand from habitat investors ​such as insurance companies and pension funds due to the opening of ‌alternative investment ‍avenues,” STCI Primary Dealer said.

States aim to borrow 332.20 billion ‍rupees ($3.70 billion) through the sale of bonds on Tuesday, which ‌is nearly 25% higher than the scheduled amount of 268.55 billion rupees.
Traders anticipate another heavy borrowing calendar for next week, as states may look to frontload some of their planned January-March borrowing.
Borrowing costs for India’s central and state governments are set to climb in the upcoming quarter as market participants brace for heavy supply amid waning prospects for further monetary policy ‍easing.
Analysts estimate aggregate debt supply of around 8.1 trillion rupees between January-March, including 3.1 trillion rupees from New Delhi and about ‍5 trillion ⁠rupees from states.

Pressure on ⁠bonds is also likely to continue as foreign investors remain on the selling side, with net exits for the month at 109 billion rupees, which has pushed holding to two-month low.

RATES

India’s overnight index swap rates rose as paying in the offshore as well as onshore market overpowered the limited receiving interest that was seen.

The one-year OIS rate ended at 5.505%, while the two-year swap rate closed at 5.6025%. The five-year OIS rate settled at 5.98%. ($1 = 89.7390 Indian rupees)