May 11, 2018 / 10:12 AM / 10 days ago

India government bond auction disappoints for fourth straight week

MUMBAI (Reuters) - The Reserve Bank of India (RBI) failed to sell all the debt it offered to bidders at an auction for the fourth week in a row on Friday, raising concerns the government may have to pay investors much more to complete this year’s borrowing programme.

An India Rupee note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/Files

The RBI, which manages the government’s borrowing programme, was scheduled to sell 120 billion rupees ($1.78 billion) of four different securities.

But it could sell only 810 million rupees of the 6.84 percent 2022 bond to bidders out of the 30 billion on offer. The remaining 29.2 billion rupees had to be bought by the underwriters of the auction.

The persistent lack of demand is a cause for worry for the government, which is scheduled to borrow a total 6.05 trillion rupees ($89.87 billion) in the current fiscal year that started in April.

“There is no demand for short-end papers and if this continues, then even the long-end papers will not be sold fully,” said a senior treasury official at a large state-run bank, adding that the Reserve Bank of India will need to buy more bonds through open market auction to cool off yields.

The RBI is scheduled to buy 100 billion rupees of bonds via open market operation on May 17.

After the auction the 10-year benchmark bond yield eased by one basis point to 7.73 percent as the long-end papers were fully sold. The bond had closed at 7.72 percent on Thursday.

Indian bonds have seen a heavy sell-off so far this year as inflation has remained above the RBI’s 4 percent medium-term target.

A sharp jump in oil prices in recent weeks and a weakening rupee is adding to concerns that the central bank could raise interest rates before the end of the year.

($1 = 67.3200 Indian rupees)

Reporting by Suvashree Dey Choudhury; Editing by Kim Coghill

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