Indian bond yields hit 1-month high; cash worries on govt spend cuts

Fri Feb 1, 2013 5:35pm IST

Related Topics

* India's 10-yr bond yield ends unchanged at 7.91 pct

* India plans to reduce spending by about 1.1 trillion rupees

* Yields rise for a second successive week

By Subhadip Sircar

MUMBAI, Feb 1 (Reuters) - Indian government bond yields rose to a near one-month high on Friday as the cash deficit in the banking system seemed likely to prolong with the government clamping down on spending in a month which will see sustained debt sales.

The government, which already has held back on spending, resulting in its cash balances with the central bank swelling, will further cut expenses.

Finance ministry officials told Reuters cuts in welfare, defence and road projects would reduce spending by about 1.1 trillion rupees ($20.68 billion) for the current fiscal year.

Finance Minister P. Chidambaram has reiterated his commitment to stick to his fiscal deficit target of 5.3 percent in the current fiscal and lower it to 4.8 percent in the next year.

The Reserve Bank of India's cash reserve ratio (CRR) cut, which will only become effective on Feb. 9, will add 180 billion rupees of liquidity in the system when the deficit is over 1 trillion rupees.

"I think the market will focus on the cash situation. Even after the CRR cut, the deficit is expected to be hover close to the 1 trillion rupee mark," said Harish Agarwal, a dealer at First Rand Bank in Mumbai.

He, however, expects the RBI to wait for the CRR cut to take effect and resume bond purchases only in the first week of March.

The 10-year benchmark bond yield ended unchanged over Thursday's close at 7.91 percent. It rose to 7.93 percent in the session, its highest since Jan. 4.

It rose 3 basis points in the week, a second week of gains.

Volumes were low at 129.10 billion rupees as most traders were away for a bond dealers' conference at Colombo in Sri Lanka.

The benchmark 5-year overnight indexed swap , an interest derivative contract which is used to guard against changes in funding costs, rose 1 bp to 7.27 percent.

The 1-year overnight index swap (OIS) rate ended flat at 7.63 percent. (Editing by Anand Basu)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

WTO

REUTERS SHOWCASE

Factory Activity

Factory Activity

Factories post fastest growth for 17 months in July  Full Article 

Car Launch Ahead

Car Launch Ahead

Tata Motors bets on new sedan to revive weak India sales.  Full Article 

Gold Smuggling

Gold Smuggling

In cat-and-mouse game, India uncovers new gold smuggling route.  Full Article 

Market Eye

Market Eye

FII selling of Indian stocks on Thursday biggest in a month  Full Article 

Profit Falls

Profit Falls

DLF quarterly profit falls 29 pct on lower home sales  Full Article 

Re-gaining Momentum

Re-gaining Momentum

China PMIs jump to multi-month highs in July, add to view economy is steadying  Full Article 

Coal India

Coal India

Some Coal India mines may be run by foreign firms - minister  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage