MUMBAI: Indian bond yields climbed to near three-month highs on Tuesday in anticipation of a sharp increase in government borrowing in the six months beginning April.
The government has set gross market borrowings at 5.7 trillion rupees ($111.05 billion) for 2012/13, and the central bank is scheduled to release after the market closes on Tuesday the calendar for debt issues in the first half of the year.
The full-year target announced in the annual budget was higher than an expected 5.3 trillion rupees.
"We expect H1 borrowing will be around 60 percent of the planned full-year gross borrowing," said Kumar Rachapudi, fixed-income strategist at Barclays Capital in Singapore.
The government is likely to borrow between 3.6 trillion and 3.8 trillion rupees from the domestic market in the first half of the fiscal year, primary dealers told Reuters on Monday.
At 10:35 a.m. (0505 GMT), the 10-year benchmark bond yield was at 8.50 percent after hitting 8.51 percent, its highest since Jan. 2. It closed at 8.47 percent on Monday.
The yield could jump to 8.70 percent in April if the first half borrowing is higher than 3.5 trillion rupees, traders said.
"If the gross H1 borrowing is lower than 3.5 trillion rupees, bonds will find support as we move closer to the April policy meet, with the market expecting a 25 basis point rate cut," Rachapudi said, who expects yields to breach 8.70 percent in the next three months on supply concerns.
Rising global oil prices and their impact on domestic inflation and interest rates if the government allows a price increase in retail fuel costs may also weigh on bond prices, traders said.
The benchmark five-year swap rate was at 7.55 percent from Monday's close of 7.53 percent, while the one-year rate was steady at 8.13 percent.
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