According to market players who spoke with the central bank last week, India’s federal government should limit borrowing in the first half of the upcoming fiscal year to 55% of the objective and increase the proportion of longer-tenor bonds.
The Reserve Bank of India, which represents as the government’s debt arranger, met with a select group of banks, primary dealers, and insurance companies last week to get their input on borrowing for the first half, according to seven bankers and treasury officials who declined to be named but spoke to Reuters.
In the following fiscal year beginning on April 1, India plans to generate 15.43 trillion rupees ($187.85 billion) through the issuance of bonds, up from the 14.21 trillion rupees it raised this year.
The government generally sells 60% of its bonds in the first half of the year, but traders have asked that this number be lowered to 55% in 2019 due to the large maturities in October and December, as well as the expected clearing of the interest rate haze. In the first half, bonds worth 1.59 trillion rupees will mature, while in the second half, bonds totaling 2.81 trillion rupees.
Dealers recommended that the government issue three-year bonds rather than two-year papers and limit the supply of shorter-duration bonds by conducting the auction using the multiple-price approach. In the first half of this fiscal year, the government issued floating rate papers (FRB), 2-year, 5-year, 7-year, 10-year, 14-year, 30-year, and 40-year bonds.
The yield curve for Indian government bonds is flat, therefore it makes sense for the government to limit issuance for up to five years given the uncertainties surrounding the rate hike cycle.
