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India’s 10-year bonds advanced a fifth day, the longest winning streak in more than a year, on optimism debt purchases by the central bank and prospects of monetary easing will spur demand.
The Reserve Bank of India will offer to buy as much as 80 billion rupees ($1.5 billion) of securities due in 2017, 2022 and 2027 at an open-market auction tomorrow, according to a Dec. 24 statement on its website. The bank resumed purchases this month to release funds into the financial system and help ease a cash squeeze. At a policy review on Dec. 18, the RBI signaled it will cut interest rates in the coming months, after holding the repurchase rate at 8 percent for a fifth meeting.
“With support from RBI’s monetary- and liquidity- augmenting policies, amid minimal risk of supply pressure, we expect the 10-year yield to drift toward 7.75 percent by the end of next quarter,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd. (YES), said in a research note.
The yield on the 8.15 percent notes due June 2022 was at 8.11 percent in Mumbai, the lowest level since July 25, compared with 8.114 percent yesterday, according to the central bank’s trading system. The yield has dropped 46 basis points this year.
Indian sovereign bonds returned 10.5 percent in 2012, the best performance after Indonesian notes among Asia’s 10 biggest local-currency debt markets tracked by HSBC Holdings Plc.
Asia’s third-largest economy expanded 5.3 percent in the three months to Sept. 30, matching a three-year low touched in the quarter ended March.
“In view of inflation pressures ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth,” the Reserve Bank said in a statement on Dec. 18.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was little changed at 7.64 percent, data compiled by Bloomberg show. The gauge was at 7.75 percent at the end of 2011.
India’s rupee weakened, giving up all of its earlier gains, on speculation investors stepped up dollar purchases to pay month-end bills.
The rupee fell 0.2 percent to 54.9375 per dollar in Mumbai, according to data compiled by Bloomberg. It has lost 3.4 percent this year, the worst performance after Indonesia’s rupiah among the 10 most-used Asian currencies, excluding the yen.
One-month implied volatility in the rupee, a gauge of expected moves in exchange rates used to price options, fell 10 basis points to 10 percent. The measure decreased 200 basis points in 2012.
Three-month onshore rupee forwards traded at 55.88 per dollar, compared with 55.79 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.82 versus 55.78. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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