India’s 10-year bonds advanced the most in two weeks on optimism demand for the notes will increase, spurred by more cash in the financial system.
Lenders borrowed 115.3 billion rupees ($2.1 billion) from the central bank’s repurchase auction window today, the least since October, according to Reserve Bank of India data. The finance ministry is scheduled to redeem 140 billion rupees of securities on July 18, according to budget documents. Local banks may buy 350 billion rupees of government debt this month to meet bond-reserve requirements, according to a research note from Barclays Plc.
“While we had been looking for the RBI to allow liquidity easing for some time, the sharp drop in repo borrowing comes as a surprise to us and the markets,” Barclays analysts including Singapore-based Kumar Rachapudi wrote in the note released today. “We continue to advocate being long on 10-year government bonds.”
The yield on the 8.15 percent notes due June 2022 fell four basis points, or 0.04 percentage point, to 8.16 percent in Mumbai, according to the central bank’s trading system. That was the biggest drop in more than two weeks. The rate fell two basis points this week.
One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell four basis points to 7.74 percent, data compiled by Bloomberg show. The rate fell seven basis points this week.
The central bank sold 150 billion rupees of bonds due in 2020, 2026, 2032 and 2041 today, as planned. The sale was part of the government’s record 5.69 trillion rupees borrowing program for the fiscal year that began April 1.
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