HSBC turns bullish on long-term India bonds post Budget

By Ragini Saxena

HSBC Holdings has changed its view on Indian sovereign bonds after last week’s budget.

Moving away from its curve steepening call, it now sees longer-maturity bonds climbing, thanks to the government’s plan to move a portion of its record $104 billion borrowing to markets overseas.

The lender had favored shorter-tenor debt which benefited from the central bank’s continued monetary easing, and expected the yield curve to steepen, Pin Ru Tan, Asia-Pacific rates strategist at the lender wrote in a note. The new policy has led to a change in view, and it now sees longer-dated debt rallying too.

India’s five-year yield has fallen about 18 basis points since July 4, the day before the federal budget, compared with around a 23-basis point drop in the 10-year yield to levels last seen in September 2017. That’s led to the so-called bull flattening of the curve -- which occurs when longer-end yields fall faster than shorter-end ones.


The government surprised investors in Friday’s budget by paring its fiscal-deficit target and announcing a plan to borrow about $10 billion overseas. The fundraising will help ease the pressure on the local market from the proposed 7.1 trillion rupee borrowing for the year to March 2020.

Global investors have bought a net $953 million of local debt so far this month, after plowing $1.2 billion in June, data compiled by Bloomberg show.

“The front-end is constrained to some degree by how far RBI rate cut pricing can go,” said Dushyant Padmanabhan, strategist at Nomura Holdings Inc. ”On the back end - besides the external debt, there’s support from foreign portfolio inflows, global yields.”