Foreign holdings of rupee-denominated debt are falling at the fastest pace since December as losses in Indian bonds deepen and the currency hovers near a record low.
The nation’s sovereign notes have turned into Asia’s worst performers in 2016, from the best in the previous two years, amid concern Prime Minister Narendra Modi’s Feb. 29 budget will show fiscal discipline is slipping away. The government on Wednesday failed to sell any of the treasury bills at an auction for the first time since July 2013 on speculation, investors sought higher yields. The rupee has weakened 3.6 percent this year in the region’s worst performance after the South Korean won as a broader emerging-market selloff spurred outflows from Indian stocks.
Overseas holdings of corporate and government debt fell by 27.5 billion rupees ($401 million) in the last three trading days, the most since Dec. 29, data from National Securities and Depository Ltd. show.
“The bond market’s performance isn’t holding in the new year,” said R. Sivakumar, the Mumbai-based head of fixed income at Axis Asset Management Co., which oversees about 346 billion rupees. “There has been selling in corporate bonds as well, as emerging markets in general have suffered. We’ll continue to see more pain, especially on longer-duration bonds.”
The yield on government notes due January 2026 has climbed 25 basis points since the new 10-year benchmark debt was issued early last month. It rose one basis point to 7.83 percent in Mumbai on Wednesday, according to prices from the Reserve Bank of India’s trading system.
The central bank, which manages the administration’s borrowing program, didn’t accept any bids for 91- and 182-day notes at the sale, which aimed to raise 140 billion rupees ($2.04 billion), according to central bank statements. The failure comes after the government raised less than the planned amounts at two previous bill sales in January.
The rupee was little changed at 68.5625 a dollar, prices from local banks compiled by Bloomberg show. The currency fell to as low as 68.6925 on Monday, near a record low of 68.845 seen in August 2013. Foreign investors have sold $2.3 billion more Indian shares than they bought this year.
The government may seek to borrow an unprecedented 6.8 trillion rupees in the financial year starting April 1, according to the median estimate in a Bloomberg survey of 10 fixed-income strategists and economists. 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.