Modi Budget Seen Slipping With India Bonds Turning Asia's Worst _ Emerging Markets, Fixed Income _ Bloomberg Professional

Embed Size (px)

Citation preview

  • 8/17/2019 Modi Budget Seen Slipping With India Bonds Turning Asia's Worst _ Emerging Markets, Fixed Income _ Bloomberg …

    1/7

    2/28/2016 Modi budget seen slipping with India bonds turning Asia's worst | Emerging Markets, Fixed Income | Bloomberg Professional

    http://www.bloomberg.com/professional/blog/modi-budget-seen-slipping-with-india-bonds-turning-asias-worst/ 1/7

     

    From the Blog Emerging Markets, Fixed Income

    Modi budget seen

    slipping with India bondsturning Asia’s worst

    BLOOMBERG NEWS  FEBRUARY 25, 2016

    This article was written by Kartik Goyal and Nupur Acharya. It appeared first 

    on the Bloomberg Terminal.

    Indian sovereign bonds have turned into Asia’s worst performers in 2016,

    from the best in the previous two years, amid concern Prime MinisterNarendra Modi’s budget will show fiscal discipline is slipping away.

    http://www.bloomberg.com/professional/blog/category/emerging-market/http://www.bloomberg.com/professional/blog/category/fi/http://www.bloomberg.com/professional/http://www.bloomberg.com/professional/http://www.bloomberg.com/professional/blog/category/fi/http://www.bloomberg.com/professional/blog/category/emerging-market/mailto:?subject=Modi%20budget%20seen%20slipping%20with%20India%20bonds%20turning%20Asia%E2%80%99s%20worst&body=Modi%20budget%20seen%20slipping%20with%20India%20bonds%20turning%20Asia%E2%80%99s%20worst%20Check%20Out:%20http%3A%2F%2Fwww.bloomberg.com%2Fprofessional%2Fblog%2Fmodi-budget-seen-slipping-with-india-bonds-turning-asias-worst%2Fhttp://www.facebook.com/share.php?u=http%3A%2F%2Fwww.bloomberg.com%2Fprofessional%2Fblog%2Fmodi-budget-seen-slipping-with-india-bonds-turning-asias-worst%2F&title=Modi+budget+seen+slipping+with+India+bonds+turning+Asia%27s+worsthttps://www.linkedin.com/shareArticle?mini=true&url=http%3A%2F%2Fwww.bloomberg.com%2Fprofessional%2Fblog%2Fmodi-budget-seen-slipping-with-india-bonds-turning-asias-worst%2F&title=Modi+budget+seen+slipping+with+India+bonds+turning+Asia%27s+worst&source=Bloomberghttps://twitter.com/intent/tweet?url=http%3A%2F%2Fwww.bloomberg.com%2Fprofessional%2Fblog%2Fmodi-budget-seen-slipping-with-india-bonds-turning-asias-worst%2F&text=Modi+budget+seen+slipping+with+India+bonds+turning+Asia%27s+worst&via=theterminal

  • 8/17/2019 Modi Budget Seen Slipping With India Bonds Turning Asia's Worst _ Emerging Markets, Fixed Income _ Bloomberg …

    2/7

    2/28/2016 Modi budget seen slipping with India bonds turning Asia's worst | Emerging Markets, Fixed Income | Bloomberg Professional

    http://www.bloomberg.com/professional/blog/modi-budget-seen-slipping-with-india-bonds-turning-asias-worst/ 2/7

    The government may seek to borrow an unprecedented 6.8 trillion rupees

    ($99 billion) in the financial year starting April 1, according to the median

    estimate in a Bloomberg survey of 10 fixed-income strategists and

    economists before the fiscal plan is announced Monday. That’s 13 percent

    higher than this year’s 6 trillion rupees estimate. The deficit target may be

    raised to 3.7 percent from 3.5 percent.

    HSBC Holdings Plc and Barclays Plc last week reduced their outlook onIndian sovereign bonds saying more supply will put upward pressure on

    yields. Modi looks set to loosen budget goals for a second consecutive

    year amid a higher civil-servant wage bill and increased spending to

    support growth in Asia’s third-largest economy during global market

    turmoil.

    “A larger deficit will definitely increase the government’s reliance on

    borrowings from the market,” said Himanshu Malik, a strategist at HSBC in

    Photographer: Udit

    Kulshrestha/Bloomberg

  • 8/17/2019 Modi Budget Seen Slipping With India Bonds Turning Asia's Worst _ Emerging Markets, Fixed Income _ Bloomberg …

    3/7

    2/28/2016 Modi budget seen slipping with India bonds turning Asia's worst | Emerging Markets, Fixed Income | Bloomberg Professional

    http://www.bloomberg.com/professional/blog/modi-budget-seen-slipping-with-india-bonds-turning-asias-worst/ 3/7

    Hong Kong. “If that happens, the government will definitely lose credibility,

    foreign investors will be disappointed and the central bank won’t have

    much scope to cut rates further. That will be quite negative for bonds.”

    Rupee-denominated sovereign debt returned 8.1 percent last year and 16.5

    percent in 2014, Bloomberg indexes tracking major Asian markets show.

    Investors have lost 0.03 percent on the bonds so far this year, compared

    with returns of 4.6 percent from Indonesian notes, 3.7 percent from

    securities in Thailand and 1 percent on Chinese debt.

    Foreign holdings of Indian corporate and government bonds dropped 27.5

    billion rupees in the last three days, the most since Dec. 29, data from

    National Securities and Depository Ltd. show.

    While the budget always garners market attention, this year it is also key to

    the path of monetary policy. Sovereign debt could lose favor amonginvestors if the fiscal-deficit targets are missed, Reserve Bank of India

    Governor Raghuram Rajan warned last month. He kept interest rates

    http://www.bloomberg.com/news/articles/2016-01-29/rajan-says-modi-missing-fiscal-goal-may-propel-india-bond-yields

  • 8/17/2019 Modi Budget Seen Slipping With India Bonds Turning Asia's Worst _ Emerging Markets, Fixed Income _ Bloomberg …

    4/7

    2/28/2016 Modi budget seen slipping with India bonds turning Asia's worst | Emerging Markets, Fixed Income | Bloomberg Professional

    http://www.bloomberg.com/professional/blog/modi-budget-seen-slipping-with-india-bonds-turning-asias-worst/ 4/7

    unchanged on Feb. 2, signaling he’d watch the budget before adding to

    the biggest interest-rate cuts in six years in 2015.

    Even though steps to boost revenue through taxes may help the

    government meet its deficit target of 3.9 percent of gross domestic

    product in the 12 months ending this March, the goal for the period

    through March 2017 is seen pressured by a proposed increase in salaries for

    millions of civil servants and higher pensions for military personnel.

    Some fiscal progress was made this year. The government’s gross

    borrowing is seen at 5.85 trillion rupees, less than the 6 trillion rupee

    projection, while net borrowing is at 4.4 trillion rupees, compared with 4.56trillion rupees, according to central bank data.

     Yield jump

    The yield on sovereign notes maturing in January 2026 has jumped 25

    basis points since the new 10-year benchmark was issued early last monthto 7.83 percent in Mumbai on Wednesday. One-year interest-rate swaps

    have climbed to an almost seven-week high of 7.03 percent, suggesting

    traders are paring bets for more rate cuts.

    The rupee has weakened 3.5 percent in 2016 in Asia’s worst performance

    after the South Korean won. Barclays last week said it prefers shorter-

    maturity Indian bonds as it trimmed duration on rupee debt to neutral from

    overweight. HSBC reduced the allocation of 10-year notes in its model

    portfolio to “mildly bullish” from “bullish.”

    ‘Be credible’

    “In the past two months, uncertainty around fiscal consolidation andconcerns about slippage have risen, with the government looking at

    proposals to raise its budget deficit targets in order to steer more

    https://www.rbi.org.in/Scripts/WSSView.aspx?Id=20436http://www.bloomberg.com/news/articles/2015-11-22/fitch-doubts-modi-budget-as-15-billion-salary-boost-hurts-bonds

  • 8/17/2019 Modi Budget Seen Slipping With India Bonds Turning Asia's Worst _ Emerging Markets, Fixed Income _ Bloomberg …

    5/7

    2/28/2016 Modi budget seen slipping with India bonds turning Asia's worst | Emerging Markets, Fixed Income | Bloomberg Professional

    http://www.bloomberg.com/professional/blog/modi-budget-seen-slipping-with-india-bonds-turning-asias-worst/ 5/7

    spending into infrastructure,” Rohit Arora, an interest-rate strategist at

    Barclays in Singapore, wrote in a Feb. 18 report. The “long end” of the

    bond-yield curve “will be rangebound to weaker amid sustained higher

    supply.”

    While gross market borrowing is estimated at 6.8 trillion rupees, the net

    issuance, excluding redemption payments for existing securities, is seen

    rising 5.3 percent from this year’s target to 4.8 trillion rupees, the median

    estimate in the Bloomberg survey showed. Besides debt sales, the

    government is expected to raise 500 billion rupees selling treasury bills

    and state governments are seen raising another 2.2 trillion rupees,

    according to forecasts by Australia & New Zealand Banking Group Ltd.

    “The budget needs to be credible, or else it’s a risk that may put further

    pressure on the bond market,” said Vivek Rajpal, an interest-rate strategist

    at Nomura Holdings Inc. in Singapore. “If the deficit target turns out to be

    higher, say at 3.7 percent, markets will not take it kindly.”

     

    More from the blog

    Looking for liquidity in the U.S. bond market

     

    http://www.bloomberg.com/professional/blog/latin-american-outlook-2016-market-impacts-to-watch/http://www.bloomberg.com/professional/blog/looking-for-liquidity-in-the-u-s-bond-market/mailto:?subject=Modi%20budget%20seen%20slipping%20with%20India%20bonds%20turning%20Asia%E2%80%99s%20worst&body=Modi%20budget%20seen%20slipping%20with%20India%20bonds%20turning%20Asia%E2%80%99s%20worst%20Check%20Out:%20http%3A%2F%2Fwww.bloomberg.com%2Fprofessional%2Fblog%2Fmodi-budget-seen-slipping-with-india-bonds-turning-asias-worst%2Fhttp://www.facebook.com/share.php?u=http%3A%2F%2Fwww.bloomberg.com%2Fprofessional%2Fblog%2Fmodi-budget-seen-slipping-with-india-bonds-turning-asias-worst%2F&title=Modi+budget+seen+slipping+with+India+bonds+turning+Asia%27s+worsthttps://www.linkedin.com/shareArticle?mini=true&url=http%3A%2F%2Fwww.bloomberg.com%2Fprofessional%2Fblog%2Fmodi-budget-seen-slipping-with-india-bonds-turning-asias-worst%2F&title=Modi+budget+seen+slipping+with+India+bonds+turning+Asia%27s+worst&source=Bloomberghttps://twitter.com/intent/tweet?url=http%3A%2F%2Fwww.bloomberg.com%2Fprofessional%2Fblog%2Fmodi-budget-seen-slipping-with-india-bonds-turning-asias-worst%2F&text=Modi+budget+seen+slipping+with+India+bonds+turning+Asia%27s+worst&via=theterminal

  • 8/17/2019 Modi Budget Seen Slipping With India Bonds Turning Asia's Worst _ Emerging Markets, Fixed Income _ Bloomberg …

    6/7

    2/28/2016 Modi budget seen slipping with India bonds turning Asia's worst | Emerging Markets, Fixed Income | Bloomberg Professional

    http://www.bloomberg.com/professional/blog/modi-budget-seen-slipping-with-india-bonds-turning-asias-worst/ 6/7

    Latin American outlook 2016: Market impacts to watch

    How the sell side is trying to preserve profitability intough times

    SEE ALL  

    News

    GET MORE

    INFORMATION

    Contact Us

    Let us show you how you can start putting knowledge into action and make

    more from the markets.

    REQUEST A DEMO

    http://www.bloomberg.com/professional/request-demo/?bbgsum=DG-WS-CORE-blog-posthttp://www.bloomberg.com/professional/blog/category/fi/http://www.bloomberg.com/professional/blog/how-the-sell-side-is-trying-to-preserve-profitability-in-tough-times/http://www.bloomberg.com/professional/blog/latin-american-outlook-2016-market-impacts-to-watch/

  • 8/17/2019 Modi Budget Seen Slipping With India Bonds Turning Asia's Worst _ Emerging Markets, Fixed Income _ Bloomberg …

    7/7

    2/28/2016 Modi budget seen slipping with India bonds turning Asia's worst | Emerging Markets, Fixed Income | Bloomberg Professional

    http://www.bloomberg.com/professional/blog/modi-budget-seen-slipping-with-india-bonds-turning-asias-worst/ 7/7

    Start putting knowledge into action and make more from the markets.

     

    © 2016 Bloomberg Finance L.P. All rights reserved. Privacy and Terms

    T W I T T E R L I N K E D I N|  

    https://www.linkedin.com/company/bloomberg-professional-servicehttps://twitter.com/theterminalhttp://www.bloomberg.com/tos/http://www.bloomberg.com/privacy/