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HSBC turns bullish on long-term India bonds post Budget

India’s five-year yield has fallen about 18 basis points since July 4.

Bloomberg|
Jul 11, 2019, 02.36 PM IST
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By Ragini Saxena

HSBC Holdings has changed its view on Indian sovereign bonds after last week’s budget.

Moving away from its curve steepening call, it now sees longer-maturity bonds climbing, thanks to the government’s plan to move a portion of its record $104 billion borrowing to markets overseas.

The lender had favored shorter-tenor debt which benefited from the central bank’s continued monetary easing, and expected the yield curve to steepen, Pin Ru Tan, Asia-Pacific rates strategist at the lender wrote in a note. The new policy has led to a change in view, and it now sees longer-dated debt rallying too.

India’s five-year yield has fallen about 18 basis points since July 4, the day before the federal budget, compared with around a 23-basis point drop in the 10-year yield to levels last seen in September 2017. That’s led to the so-called bull flattening of the curve -- which occurs when longer-end yields fall faster than shorter-end ones.

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The government surprised investors in Friday’s budget by paring its fiscal-deficit target and announcing a plan to borrow about $10 billion overseas. The fundraising will help ease the pressure on the local market from the proposed 7.1 trillion rupee borrowing for the year to March 2020.

Global investors have bought a net $953 million of local debt so far this month, after plowing $1.2 billion in June, data compiled by Bloomberg show.

“The front-end is constrained to some degree by how far RBI rate cut pricing can go,” said Dushyant Padmanabhan, strategist at Nomura Holdings Inc. ”On the back end - besides the external debt, there’s support from foreign portfolio inflows, global yields.”
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