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India expected to frontload debt borrowing for first-half of year

[MUMBAI] India's government is expected to sell up to two-thirds of its full-year debt issuance of 6 trillion rupees (US$95.89 billion) in the first half of the year to capitalise on a market rally, traders said.

The government has traditionally sold about 55-60 per cent of its planned annual issuance from April to September, but traders say it could borrow around 60 to 67 per cent in the first half this year.

Frontloading of borrowing is expected to be higher than normal as benchmark 10-year bond yields have fallen 10 basis points (bps) this calendar year after the Reserve Bank of India cut interest rates twice.

The yield had dropped nearly 100 bps last year, in its biggest annual drop since 2008.

Officials at the RBI, which sells debt on behalf of the government, will meet their finance ministry counterparts on Monday at 3 pm (0930 GMT) to finalise the borrowing plan for the first-half of the fiscal year starting in April.

The government had already announced the full-year target, which is higher than the 5.92 trillion rupees raised in the current fiscal year ending in March. "The borrowing this time could be top-heavy at around 65 per cent of the net borrowing plus redemptions," said Arvind Chari, head of fixed income and alternatives at Quantum Advisors in Mumbai.

India borrows heavily from markets to fund its fiscal deficit, which the government has targeted at 3.9 per cent of gross domestic product for the 2015/16 year.

Traders hope India will sell more debt in the form of liquid benchmark paper. Some traders said the RBI could do that in the first half, including by increasing the initial auction size of a new benchmark bond which is expected to be unveiled.

The RBI could then issue non-standard bond maturities such as 10-1/2 years or five-and-a-half years in the second half of the fiscal year to help spread out redemptions for the government.

REUTERS