Indian bonds declined for a second day after the government raised its annual debt-sale target by 25 % to a record, seeking to bridge a budget deficit that?s set to reach the widest in 16 years. The drop pushed five-year note yields to a one-week high after Finance Minister Pranab Mukherjee said on Monday the government will seek to borrow as much as $93 billion in the year ending March 31. The budget shortfall will widen to 6.8 % of gross domestic product, the most since 1994, as India spends more to spur growth, he said.
?The bond market is going to come under a lot of pressure this quarter given the large supply in the pipeline,? said Baljinder Singh, a Mumbai-based fixed-income trader at state- owned Andhra Bank. ?Yields need to rise further.?
Yields on the 6.07 percent note due May 2014 climbed one basis point to 6.46 % on Tuesday. The rate added 22 basis points on Monday yesterday. The price fell 0.05, or 5 paise per 100 rupee face amount, to 98.38. A basis point is 0.01%. The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, rose. The rate, a fixed payment made to receive floating rates, was at 6.34%, compared with 6.28 % on Monday.
The Indian rupee ended 10 paise stronger at 48.44/45 against the dollar on Tuesday, moving in tandem with local stocks as the US currency improved against major world counterparts. The dollar was marginally higher against the euro in early trade on the London exchange amid fresh worries that the global economy might take more time for recovery than anticipated.