MUMBAI, Feb 28 (Reuters) - Indian government bonds fell to
their lowest in more than two weeks on Thursday after the
finance ministry announced a gross market borrowing target that
was well above expectations, dashing hopes of reduced debt
The government is planning to borrow 6.29 trillion rupees in
the fiscal year starting April, higher than the 5.58 trillion
rupees for the current fiscal year, according to the budget
unveiled by Finance Minister P. Chidambaram.
That was higher than market expectations of 5.6-5.7 trillion
rupees, disappointing investors who were also sceptical about a
budget that proposes higher spending as well as increased taxes.
The budget also raised doubts about whether it would be
enough to spur Reserve Bank of India to cut interest rates,
given fiscal consolidation was seen as a key criteria to spur
more monetary easing by the central bank.
"The market borrowing numbers are higher than our estimates,
and it is negative for the market. There will be upward pressure
on yields," said Nagaraj Kulkarni, South Asia senior rates
strategist at Standard Chartered Bank in Singapore.
"However, interest rate cuts by the Reserve Bank of India
need not be related to market borrowing. They will focus on the
quality of the fiscal consolidation."
The benchmark 10-year bond yield rose 7 bps
to 7.87 percent from Wednesday's close, after earlier rising to
as high as 7.88 percent, the highest yield since Feb. 12.
Yields had fallen over 35 basis points since Dec. 21 on
hopes of the government's fiscal discipline and rate cuts from
the central bank.
Net borrowing was also slightly higher than expected, with
the government targeting 4.84 trillion rupees in 2013/14, above
expectations for the government to keep it inline with this
year's 4.67 trillion rupees.
Interest rate swaps also rose with the 5-year OIS
up 5 bps at 7.23 percent. The near-end 1-year OIS
rose 2 bps at 7.62 pct.
Dealers said the government announced a higher-than-expected
gross borrowing target to accommodate a 500 billion rupee
Bonds dealers are now awaiting the December quarter GDP
numbers due at 1130 GMT for further cues. Any number cementing
the evidence of slowing economic growth may help arrest the rise
in yields, they said.
(Reporting by Subhadip Sircar; Editing by Gopakumar Warrier)