Sovereign bond issue: Dealers await H2 calendar for hints on offshore bond

By: |
Published: September 24, 2019 3:35:59 AM

Finance minister Nirmala Sitharaman had stated that the government would decide on additional market borrowings for the second half of fiscal year 2020 later.

The gross market borrowing for FY20 is pegged at Rs 7.1 lakh crore.The gross market borrowing for FY20 is pegged at Rs 7.1 lakh crore.

The benchmark yield closed 4 bps lower on Monday at 6.749%, after having witnessed a sell-off on Friday. With the government announcing measures to boost the economy on Friday and the finance minister subsequently clarifying that fiscal deficit target will not be revised immediately, the bond market is now awaiting the release of the second half borrowing calendar to understand if an overseas sovereign bond issuance is still on the cards.

Finance minister Nirmala Sitharaman had stated that the government would decide on additional market borrowings for the second half of fiscal year 2020 later.

According to a source, finance ministry officials are likely to meet select primary dealers and banks on Monday even as the second half borrowing calendar is expected to be released in a few days. The agenda of the meeting was not yet clear.

“The only positive news that can come out of the second half borrowing calendar is if the government says they will issue a sovereign bond overseas. That will be a positive surprise because the plan was virtually put on hold after being announced with much enthusiasm earlier,” said a primary dealer.

It was announced during the budget that the government would start raising a part of its gross borrowing programme in external markets in external currencies.

However, the overseas bond plan was reportedly put on the backburner after objections from former Reserve Bank of India (RBI) governors and other economists.

The government is expected to raise Rs 4.42 lakh crore in the first half of FY20 —between April and September — through market borrowing. The gross market borrowing for FY20 is pegged at Rs 7.1 lakh crore.

Manish Wadhawan, independent fixed income and forex expert, believes the government is expected to maintain the second half borrowing programme as per earlier schedule and would recalibrate it only after looking at the December tax calculations.

“In my view, the probability of extra borrowing in this fiscal is very high on account of the Rs 1.45 lakh crore fiscal boost, but that clarity would be likely available by December end. The markets have already factored in the likelihood of additional borrowing but what it is trying to gauge is the possible rate cuts ahead,” he said.

Bond yields have pared all the gains made since the 35 bps repo rate cut by the RBI during the August monetary policy. So far, the central bank has reduced the repo rate by 110 bps since the beginning of this year.

Soumyajit Niyogi, associate director, Core Analytical Group at India Ratings & Research, said with the cut in corporate tax amid low revenue collection, the scope for extra borrowing has gained traction. “Curtailing government expenditure at the juncture could become counterproductive to corporate tax cut in the short term. However if the government chooses to borrow the additional amount from abroad, then the pressure on domestic bond yield will ease; otherwise spread between G-sec yield over repo rate will remain elevated,” he said.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.