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India 2030 bond yield rises to 4-mth high as supply looms

[MUMBAI] Indian sovereign bonds maturing in 2030 fell, pushing the yield to its highest level since August, as the government offers the securities at an auction.

Prime Minister Narendra Modi's administration plans to sell 140 billion rupees (S$2.99 billion) of debt on Friday, including 60 billion rupees of the 2030 notes, as sales resume after a two-week break. Demand faltered at the last two auctions, with underwriters coming to the rescue by purchasing unsold securities. Benchmark 10-year yields capped their biggest quarterly advance since 2013 on Thursday as concern India will struggle to meet its budget-deficit targets soured investor sentiment.

The yield on the 7.88 per cent debt due March 2030 rose two basis points to 7.97 per cent as of 12:58 p.m. in Mumbai, the highest since Aug 24, according to prices from the central bank's trading system. That on the notes due May 2025, the current 10-year benchmark, was steady at 7.76 per cent.

"The market is a bit nervous," said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. "Bond gains have been hard to come given the concerns about the fiscal-deficit targets and an increase in states' borrowings."

Finance Minister Arun Jaitley's goal of fiscal consolidation is being threatened by a proposed increase in salaries of millions of civil servants and a plan to clear the debts piling up at power distribution companies. While steps to boost taxes will help reach the deficit target of 3.9 per cent of gross domestic product in this period, the 3.5 percent goal for the 12 months ending March 2017 could be pressured, the ministry said in a review published Dec 18.

The rupee fell 0.2 per cent on Friday to 66.2575 a dollar, prices from local banks compiled by Bloomberg show. The currency weakened 4.7 per cent last year in its fifth straight annual decline, the longest stretch since 2001.