India likely to discuss second half borrowing on September 25, sources say

India’s government officials are likely to meet next Friday to finalise the borrowing calendar for the second half of the fiscal year ending in March, two sources familiar with the matter said.An announcement is expected after the meeting.New Delhi plans to raise ₹16.09 trillion ($167.92 billion) through bond sales this fiscal year and has borrowed ₹7.79 trillion rupees so far, with the final first-half auction, worth ₹340 billion due next Friday.That leaves ₹7.96 trillion of gross borrowing for October-March, including 65 billion rupees not raised at a three-year bond auction on September 11.In consultations with market participants ahead of the borrowing plan, a regular practice, most investors favoured increasing the share of shorter-dated three-year and five-year bonds, one of the above mentioned source and two traders, who could not be named because they are not authorised to speak to media, said.However, the Reserve Bank of India’s subsequent decision to conduct open market bond sales has complicated that preference, traders added.”Open market sales were not on the minds of the majority during those meetings, but they are now a bitter reality,” one of the traders said. “Increasing supply in that segment could distort the yield curve and push up short-term borrowing costs.”The RBI has announced bond sales to drain record banking-system liquidity after dollar inflows from diaspora deposits far exceeded estimates.Market participants also recommended reducing 10-year bond issuance or splitting supply between two alternate-week auctions instead of one sale every four weeks.The RBI sold ₹340 billion of 10-year bonds every four weeks between April and September, accounting for 29% of total issuance.The share of three- and five-year bonds rose to 23.5% in April-September from 16.6% a year earlier.Meanwhile some market participants had suggested increasing the share of ultra-long bonds with maturities of 30 to 50 years, which had been cut to about 25% of total borrowing, from 35% a year earlier.Investors will also focus on the auction size of ultra-short Treasury bills, which have seen stronger demand as compared to dated securities, amid expectations the left-out 65-billion-rupee borrowing to be a part of this plan.

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