MUMBAI, March 11 (Reuters) – Some Indian states and a large government-run firm are issuing short-term bonds to fulfill their funding requirements as yields on long-term notes have risen.
At an auction on Tuesday, Indian states will raise 495 billion rupees ($5.7 billion) through bonds, of which 28% will be via notes maturing within six years.
Such bonds accounted for a mere 3.4% of states’ borrowing at the other auctions in the January-to-March quarter.
“With the central bank rate cut cycle continuing, we expect long-term yields to come down in the next year, while better demand for shorter duration segment would also have nudged states to go for lower tenor bonds this week,” said Alok Sharma, head of treasury at ICBC.
The spread between India’s 10-year benchmark bond yield and similar maturity state debt has risen to the highest in more than a year. The 10-year state bond yields jumped to their highest in over seven months last week.
Fixed income market participants expect India’s central bank to cut the policy rate by another 50 basis points over the coming months, after it kick-started the easing cycle in February with a 25 bps reduction, which was its first cut in nearly five years.
The 10-year benchmark bond yield is anticipated to ease to at least 6.50% in the coming months.
“Overall direction for bond yields is downwards for the next financial year,” said VRC Reddy, treasury head at Karur Vysya Bank.
India’s fiscal year runs April through March.
State-run Power Finance Corp will raise up to 80 billion rupees through the sale of 13-month, and three-year and four-month bonds this week.
The company, which typically prefers longer-duration debt, did not respond to a Reuters email seeking comment. ($1 = 87.3000 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)
