Traders look to RBI for support as India’s bond rout worsens

Bloomberg

Traders in India’s battered bond market want the central bank to play the role of a savior. With the market reeling under the worst selloff in almost two decades, investors say the Reserve Bank of India should consider buying support as well as expand the quota limits for global funds. Absent that, they expect the
declines to continue.
“To calm the bond market, the supply-demand maths has to fit in; meaning keep fiscal deficit in check and/or find additional demand levers by increasing limits for foreigners or the RBI doing bond purchases,” said Mumbai-based Lakshmi Iyer, the chief investment officer for debt at Kotak Mahindra Asset Management Co., which oversees $19 billion in assets.
The nation’s sovereign bonds are set to decline for the sixth straight month in January, the longest stretch since 2000, amid elevated oil prices and hardening global yields.
The yield is seen climbing as high as 8 percent in the fiscal year starting April 1, a level last seen in 2014, according to ICICI Securities Primary Dealership Ltd. The yield fell one basis point on Wednesday to 7.42 percent as of 9:40 a.m. in Mumbai.
Allowing foreigners to buy more government debt will help absorb a record supply of bonds, which along with worries over accelerating inflation and wider deficits has spooked the market. Global funds bought 1.4 trillion rupees ($22 billion) of bonds in 2017, the most in four years, and the central bank has said it would raise the cap on overseas investors to 5 percent of outstanding bonds by March 2018.
Bond purchases will help comfort the market, Bank of America Merrill Lynch said in a note, forecasting $25 billion of such operations in the year starting April 1. It’s not the first time the central bank would have bought debt.