India’s 10-year bonds advanced, pushing the yield to the lowest level in more than a week, on optimism improved cash levels at banks will spur demand.
Lenders borrowed 115.3 billion rupees ($2.1 billion) via the central bank’s daily repurchase auction on July 6, the least since October, according to Reserve Bank of India data. Gross domestic product rose 5.3 percent in the first quarter from a year earlier, the slowest pace in nine years, official data show. Slowing economic growth may prompt the central bank to ease monetary policy, said R.S Chauhan, chief dealer of currencies and fixed-income at State Bank of Bikaner & Jaipur.
“The surge in liquidity is helping bonds,” said Mumbai- based Chauhan. “Given the weak economic conditions, bonds will broadly remain supported.”
The yield on the 8.15 percent notes due June 2022 fell one basis point, or 0.01 percentage point, to 8.15 percent in Mumbai, according to the central bank’s trading system. That’s the lowest level since June 28.
The finance ministry will repay 140 billion rupees of debt on July 18, according to budget documents, further boosting cash in the financial system.
The central bank kept the repo rate unchanged at 8 percent at a policy review on June 18, after cutting it by 50 basis points in April. The next policy review is on July 31.
One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose two basis points to 7.76 percent, data compiled by Bloomberg show.
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