Bloomberg News

India’s Bonds Advance as Yields at 3-Year High Attract Buyers

October 11, 2011

Oct. 11 (Bloomberg) -- India’s 10-year bonds rose for the first time in nine days on speculation yields at the highest level in three years will lure investors.

The yield has climbed 27 basis points since the finance ministry said Sept. 29 it will borrow 32 percent more than earlier planned in the six months ending March 31. Bonds gained on speculation the central bank will refrain from boosting borrowing costs at a policy review this month as Europe’s debt crisis threatens to hurt the global economy.

“There was probably some value buying as yields have risen sharply in recent days,” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “There was also some hope that the central bank may pause raising interest rates.”

The yield on the 7.8 percent securities due April 2021 fell four basis points, or 0.04 percentage point, to 8.71 percent in Mumbai, according to the central bank’s trading system. The price increased 0.26, or 26 rupees per 10,000 rupee face amount, to 94.22.

The finance ministry will sell a record 4.7 trillion rupees ($96.3 billion) of securities in the year ending March 2012, compared with an earlier estimate of 4.17 trillion rupees, R. Gopalan, secretary of the Department of Economic Affairs, said last month.

The Reserve Bank of India has increased the repurchase rate six times this year to 8.25 percent to damp inflation that has held above 8 percent for 20 months. The next policy review is on Oct. 25. The wholesale price index may have risen 9.75 percent in September, according to the median of estimates of 17 economists in a Bloomberg survey before the data is published on Oct. 14.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, fell 19 basis points to 7.90 percent, according to data compiled by Bloomberg.

--Editors: Indranil Ghosh, Sam Nagarajan

To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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