Bonds fall on fears of higher govt spending

Written by Bloomberg | Updated: Nov 29 2011, 07:26am hrs
The 10-year bonds fell for a second straight day after the government outlined higher spending in the current fiscal year. The finance ministry plans to spend an extra R63,180 crore in the year through March, according to documents finance minister Pranab Mukherjee submitted to Parliament last week.

Some of the spending will have to be done through borrowing and that means it will affect demand for bonds adversely, said Roy Paul, a deputy general manager at Federal Bank in Mumbai. I expect yields to move up further.

The yield on the 8.79% bonds due November 2021 rose two basis points to 8.83% in Mumbai, according to the central banks trading system. The yield may rise to 8.9% in two weeks, Paul said.

The cost of one-year interest-rate swaps rose one basis point to 8.13%.