Govt H2 borrowing target in line with market estimates; gilts to act favourably
27 Sep 2021
NEW DELHI: The central government, in consultation with the Reserve Bank of India, has pegged its borrowing through issuance of dated securities at Rs 5.03 lakh crore for the October-March period, according to a release on the Press Information Bureau.
The quantum is in line with the overall gross market borrowing of Rs 12.05 lakh crore projected in the Union Budget for 2021-22 (Apr-Mar).
The bond market is likely to react favourably to the news, as speculation was rife that the supply of bonds could outstrip the projected aim in the October-March period because of the issuance of securities to make up for a shortfall in compensation cess for state governments.
“The H2 FY2021-22 projection also factors in requirement for release of balance amount to states on account of back-to-back loan facility in oieu of GST compensation during the year,” the government’s release said.
In April-September the government issued gilts worth Rs 7.02 lakh croresl out of a planned target of Rs 7.24 lakh crore.
The weighted average yield of bonds in the April-September period was at 6.19 per cent, while the weighted average maturity of the government’s debt issuances was at 16.69 years, the release said, adding that demand for sovereign debt was robust from all major investor segments.
Issuance of government securities has seen a large increase over the past couple of years as a slowdown in economic growth –accentuated by the Covid-19 crisis has taken a toll on the Centre’s revenue streams.
While the large burden of bond supply has hit the market’s appetite, substantial purchases of securities by RBI has helped the demand-supply dynamics.
The borrowing for the second half of the financial year is likely to be held through 21 weekly tranches worth Rs 23,000-24,000 crore each.
The issuances in October-March will be spread through tenures of 2-year, 5-year, 10-year, 14-year, 30-year and 40-year securities as well as floating rate bonds of 7-year, 8-year and 13-year tenures.
Of this, 4 per cent of bond sales will be of 2-year securities, 11.9 per cent of 5-year securities, 28.4 per cent of 10-year securities, 17.9 per cent of 14-year securities, 13.9 per cent of 30-year securities and 15.1 per cent of 40-year securities, the release said.
The sale of floating rate bonds will amount to 8.8 per cent of issuances in Oct-Mar.
The weekly issuance of Treasury Bills in October-December is projected at Rs 20,000 crorenwith the net borrowing through these short-term instruments amounting to Rs 1.04 lakh crore during the quarter, the government said.
The weekly break-up is as follows: Rs 10,000 crore through 91-day T-bills, Rs 3,000 crore through 182-day T-bills and Rs 7,000 crore through 364-day T-bills.
The government will continue with the practice of conducting debt switches to ease its redemption pressur and prevent bunched-up payments in a particular year, the release said.
In a switch operation, the government issues longer-term debt in lieu of papers up for imminent maturity and the auctions are typically conducted on the third Monday of every month.
“To take care of the temporary mismatches in government account, the Reserve Bank of India has fixed the Ways and Means Advance (WMA) limit for H2 at Rs 50,000 crore,” the government said.
The Ways and Means Advance facility is essentially an overdraft provided to the government by RBI to tide over temporary mismatches in the Centre’s finances.
Yield on the 10-year benchmark 6.10 per cent, 2031 bond could decline around 1-2 basis points on Tuesday, as the market is likely to express relief at the lack of a heavier borrowing number for October-March, treasury officials said. Bond prices and yields move inversely.