No dearth of liquidity, but RBI sees little demand for govt bonds

 Indian govt bonds are the "good stuff" and must sell. It's the only way tax-strapped authorities can raise money and spend it to shake the economy out of its Covid-19 stupor

A vigilante and a gambler walk into a bond market. No, that’s not the start of a new joke, just the comical look of India’s fixed-income saloon nowadays. There’s no dearth of liquidity, but the bartender — the central bank — is having a tough time getting orders for the good stuff even by cajoling and threatening customers.

At the same time, potent but risky hooch is selling briskly, although the lawman — the Federal Reserve — is almost at the door.

Indian government bonds are the “good stuff” and must sell. It’s the only way tax-strapped authorities can raise money and spend it to shake the economy out of its Covid-19 stupor. Yet a yield of just about 6% on 10-year rupee paper from a barely investment-grade sovereign has none of the kick of the near-21% rate of return offered by a D-rated private borrower on a five-year note.

That’s how much Kesoram Industries Ltd., a Kolkata-based cement manufacturer that defaulted last year, recently gave on its 16 billion rupees ($221 million) in junk bonds, which got sold to the likes of Goldman Sachs Group Inc. and Cerberus Capital Management.

But rather than the gamblers, it’s the vigilantes — pesky investors never happy with lax fiscal and monetary policies — who seem to be bothering the Reserve Bank of India. The RBI, which has the job of raising money for the government, invited fixed-income investors to join it in a tango and “forestall a tandav” — the solo dance of destruction of the Hindu god Shiva. (I didn’t make this up. See the bank’s March 19 monthly bulletin for a veiled threat involving acrobatic moves and colorful imagery around bond vigilantes, who “prowl markets, guns holstered and saddled up.”)