Indian sovereign bond yields to be attractive 

A 10-year Indian government paper would have a yield of 3.5 per cent to 3.7 per cent.

Published: 10th July 2019 08:03 AM  |   Last Updated: 10th July 2019 08:03 AM   |  A+A-

Krishnamurthy Subramanian, Chief Economic Adviser, Government of India

Krishnamurthy Subramanian, Chief Economic Adviser, Government of India

Express News Service

NEW DELHI: India’s sovereign bonds, when released, could have yields of 1.5-1.75 per cent over US treasury yields of similar maturity, which could mean that a 10-year maturity bond issued by the Indian government would have a yield of 3.5-3.75 per cent. Currently, a 10-year US treasury bond yield stands at around 2.04 per cent, while the Chinese government paper fetches about 3.19 per cent. India’s state-run Power Finance Corporation (PFC) recently raised USD 1 billion, issuing bonds with a maturity of five years and 10 years; the 10- year paper fetches yield of about 4.45 per cent.

“These were semi-sovereign bonds as they were raised by government-backed firms and they priced the bonds by adding 195 basis points on five-year paper and 242.5 basis points on 10-year paper over similar-maturity US Treasury bond yields,” a finance ministry official said. “A fully sovereign bond yield would do better, say by three quarters to a percentage or so,” the official said.

However, officials in the ministry admitted that the problems would be in the rupee-dollar rate. “We have to factor in possible currency fluctuations, the way hedging is done and then figure out what is attractive,” they said. Domestic 10-year maturity debt raised by the government attracts yield of 6.56 per cent to 7.15 per cent. “We have to test the waters to fix a benchmark yield, but we do believe we will get a good deal,” the official said.

The appetite for Indian papers is good, officials said, as PFC was offered five times the money it sought to raise. Though India’s credit rating is just above junk, because of its fast-growing economy tag, prudent central bank’s image and low foreign-debt profile, it is considered a good bet in global capital markets.

Earlier in the day, at a function organised here, Chief Economic Adviser Krishnamurthy Subramanian said the government is likely to come up with sovereign bonds to be floated in the overseas market by the second half of the current financial year after studying the “risks and returns” to raise funds abroad. Other officials have indicated that up to USD 10 billion could be raised from the overseas market through the sovereign float.

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