India’s 10-year bonds dropped the most since September 2001 after the government said it will increase debt sales to fund additional spending.
The benchmark bond slid for the third day, pushing yields to a three-week high, as India said it will sell Rs 35,000 crore of debt this month, Rs 5,000 crore more than an earlier plan.
“Plans to boost growth will come at a cost for the government and investors are pricing in those risks associated” with it, said Jayant Chiney, treasurer at state-owned Bank of India in Mumbai. “Yields are going to rise further, as there may be a trend to increase debt supply each time stimulus packages are announced.” On Jan 9, the government will sell Rs 7,000 crore of the 7.59% notes maturing in 2016, Rs 4,000 crore of the 6.3% notes due 2023, Rs 4,000 crore of 7.5% notes due 2034.
The rupee fell as a plunge in the equity market triggered by the country’s biggest corporate scandal in memory raised concerns of foreign fund withdrawals, but broad weakness in the US unit limited losses. It closed at 48.80/81 per dollar, 0.3% weaker than its previous close. “The rupee weakened due of the drop in shares but the slippage in the dollar globally helped,” a senior dealer at a private bank said. India’s main share index was down 7.25% to post its first loss in the new year.