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Thursday, March 18, 2010

Govt borrowing to be helped by short-term bond issues

The Reserve Bank of India (RBI), tasked with managing record government borrowing, could resort to more short-term and floating rate bonds in the new fiscal year, while it raises interest rates to tame inflation.

Gross government borrowing will rise by 1.3 percent to 4.57 trillion rupees ($100 billion) in the fiscal year that starts on April 1. While a resurgent economy makes that debt easier to sell, worries about fiscal discipline continue to weigh on bonds.

The median estimate in a Reuters poll of 10 analysts showed the RBI could borrow 3.1 trillion rupees, or 68 percent of its gross full-year requirement, between April and September.

Kotak Mahindra Bank expects about 600 billion to 700 billion rupees of the first half issuance in the 2 to 5-year segment.

However, JPMorgan Chase expects it to be just 90 billion rupees and predicts the issuance pattern to be similar to that of the this fiscal year, where the programme was dominated by issues with a maturity between 5 years and 10 years.

"Floating rate bond issuance will surely help in assuaging the concerns of a bond trader when he looks at the total amount of fixed rate bonds in the market," said B. Prasanna, chief executive officer of ICICI Securities Primary Dealership.

Investors prefer floating rate bonds of up to 10 years and fixed rate bonds of up to 5-year maturities, he said.

The average maturity of outstanding floating rate bonds is 7 years.

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