Bond sales to soar in FY26 on higher debt repayments: report

Bond sales may soar in the coming fiscal year on higher debt repayments, Bloomberg reported, citing a government official who declined to be identified.

Sales in the next fiscal beginning April are likely to be higher on redemption of debt issued during the pandemic years, the official said, adding that the government is likely to keep borrowing unchanged for the remainder of the current fiscal year as the spending is likely to pick up.

Bond sales will also increase as the government maintains its borrowing levels in the last five months of the current fiscal year, the report said.

Prime Minister Narendra Modi’s government plans to borrow ₹14.01 trillion (about $168 billion) by 31 March, lower than ₹15.43 trillion in 2023-24, to repay debt and  to support the increased spending by various state and central departments

Higher bond sales may hurt sovereign bonds that have been among Asia’s best performers, largely held up by foreign inflows spurred by inclusion into global indexes.  Indian sovereign bonds were included in global indexes, including JP Morgan Government Bond Index for Emerging Markets (GBI-EM), this year.

The yield on the 10-year bond rose 1 basis point to close at 6.82% on Monday. One basis point is one-hundredth of a percentage point.

To improve the maturity profile for next year, the government has bought back ₹800 billion of debt and extended the maturity period of ₹1.35 trillion worth of debt against the budgeted ₹1.5 trillion, the official said in the report.

The government doesn’t expect any expenditure shortfall in the current fiscal year to March, and is encouraging departments and states to speed up spending, the official added.

Amid covid-19, as the stimulus packages to prevent the economy from crashing were rolled out, government borrowings from the market rose by 77% during pandemic to ₹12.6 trillion, leading to a fiscal deficit of 9.2% of GDP in 2020-21. Since then, government borrowing has continued to hit record highs, rising to ₹14.21 trillion in 2022-23.