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Indian bonds fall most in 1-1/2 months; fiscal concerns rise on food bill
August 27, 2013 / 12:06 PM / 4 years ago

Indian bonds fall most in 1-1/2 months; fiscal concerns rise on food bill

* 10-year bond yield rises 44 bps to 8.78 pct
    * Parliament's lower house passes food security bill
    * Fin Min says will stick to 4.8 pct fiscal deficit plan
this FY

    By Subhadip Sircar
    MUMBAI, Aug 27 (Reuters) - Indian government bonds fell the
most in a month and a half on Tuesday, extending losses for a
third session, on worries that a massive food subsidy programme
for the poor will aggravate the fiscal deficit, also sending the
rupee to a record low.
    The lower house of parliament approved a plan worth 1.35
trillion rupees ($20.94 billion) on Monday to provide cheap
grain to the poor, which is expected to be a key election plank
as the Congress-led United Progressive Alliance aims for a third
term. 
    Finance Minister Palaniappan Chidambaram on Tuesday
reiterated that the government will not breach the 4.8 percent
fiscal deficit target, but investors appeared worried about the
government's resolve to keep a tab on spending ahead of national
elections due by May. 
    The resurgence of worries about the fiscal deficit comes as
a record low rupee continues to exacerbate concerns about the
current account deficit.
    The rupee plunged 2.9 percent on Tuesday, falling to a
record low of 66.075 to the dollar, sending stocks tumbling 3.2
percent. It had closed at 64.30/31 on Monday.
    "I will be happier if the finance minister says how the
government will accommodate the food security bill. The market
fears that the bill might be one in a queue of many populist
measures with eye on elections," said Killol Pandya, senior fund
manager-debt at LIC Nomura Mutual Fund.
    The benchmark 10-year bond yield rose 44
basis points to 8.78 percent, its biggest rise since the RBI
unveiled its first cash-tightening steps on July 15. Yields have
risen 52 bps in the past three sessions. Volumes remained low at
152.60 billion rupees.
    Bonds fell even after the central bank said on Monday it
will buy 80 billion rupees ($1.24 billion) worth of government
bonds through an open market operation on Aug. 30.
 
    In the overnight indexed swap market, the benchmark
five-year rate closed up 36 bps at 8.78
percent. The one-year rate ended higher 34 bps
at 9.84 percent.

 (Editing by Subhranshu Sahu)

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