India?s 10-year bonds fell, snapping a two-day gain, after the government failed to sell 120 billion rupees ($2.5 billion) of debt at an auction on August 7, the first such instance since March.
Yields on notes due 2019 rose to the highest level since the benchmark was issued on July 13 as the Reserve Bank of India, which conducts the sales, shunned bids. It didn?t provide a reason for the decision. India plans to borrow a record Rs 4.51 trillion in the fiscal year that started April 1 to finance the biggest budget deficit in 16 years.
?The rejection of bids has sent confusing signals and has only worsened the bearish mood in the bond market,? said Srinivasa Raghavan, head of treasury at IDBI Gilts Ltd. in Mumbai. ?Yields may rise further as demand may be affected.?
The yield on the 6.9 % note maturing in July 2019 climbed six basis points, or 0.06 percentage point, to 7.10%. The price declined 0.44, or 44 paise per 100-rupee face amount, to 98.61.
Ten-year yields may increase to 7.3 % in coming weeks, Raghavan said.
Meanwhile the Indian rupee overcame a shaky stock market and nudged higher on Monday, powered by foreign demand for a large initial public offering by state utility NHPC Ltd.
The partially convertible rupee closed at 47.82/83 per dollar, marginally above its previous close of 47.85/86. The rupee traded in a wide band of 47.64 to 47.89 during the session.
NHPC’s IPO for up to $1.25 billion was subscribed 3.5 times on the first day on Friday. The offering closes on Wednesday. Adani Power’s $630 million IPO was subscribed more than 20 times when it closed on July 31.
Naveen Raghuvanshi, associate vice president at Development Credit Bank, said the IPO inflows helped the rupee after it swung in tandem with the choppy stock market and cross currencies.
?Inflows from NHPC were there and are likely to continue until its closure,? he said.