Indian Bonds Fall as Investors Wary of First-Half Debt Sales

March 2 (Bloomberg) -- India’s 10-year bonds fell, pushing yields to their highest level in more than a week, on concern the government will increase borrowing in the first half of the year beginning April, when the bulk of debt will mature.

The government will raise a record 4.57 trillion rupees ($99.3 billion) in the next fiscal year, Finance Minister Pranab Mukherjee said on Feb. 26. Debt payments will more than double to 1.14 trillion rupees, of which almost three quarters are scheduled to be repaid in the four months through July, according to the government’s budget.

“Since you have heavy redemptions you have to be prepared for big bond sales in the first half,” said Rajeev Radhakrishnan, who manages the equivalent of $4 billion of debt at SBI Funds Management Pvt. Ltd., a unit of the nation’s biggest bank, in Mumbai. “Yields will be under pressure until the auction calendar is announced.”

The yield on the 6.35 percent note due January 2020 rose four basis points to 7.9 percent at 10:40 a.m. in Mumbai, the highest intraday level since Feb. 19, according to the central bank’s trading system. The price fell 0.26, or 26 paise per 100 rupee face amount, to 89.50.

The yield will be between 7.75 percent and 8 percent this month, Radhakrishnan predicted. The government will soon start discussion with the central bank on next fiscal year’s borrowing schedule, Finance Secretary Ashok Chawla said on Feb. 26.

The plan to auction licenses for nationwide third- generation mobile phone services will be a key factor deciding the borrowing schedule in the first half, said Radhakrishnan. India expects to earn 350 billion rupees from the auction.

The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased today. The rate, a fixed payment made to receive floating rates, rose to 7.06 percent from 7.02 percent on Feb. 26.