India’s 10-year bonds jumped, sending the yield to a two-year low, after the government deferred a debt auction previously scheduled for this week. The rupee strengthened the most in more than three weeks.
Benchmark yields slid after the finance ministry said in a statement yesterday that it will offer 120 billion rupees ($2.2 billion) of notes in February instead of this week. The sale is part of a record 5.7 trillion rupee federal borrowing program for the year ending March 31. Bonds gained after the central bank said in a separate statement that it plans to purchase 80 billion rupees of debt at an open-market auction on Jan. 4.
“The sense investors are getting is that the government won’t exceed its borrowing plan,” said Killol Pandya, Mumbai- based head of fixed-income investments at the local unit of Daiwa Asset Management Co. “Along with open-market operations, it’s a happy situation. I doubt these levels can last as the 10- year yield can’t be below overnight rates for long.”
The yield on the 8.15 percent notes due June 2022 dropped five basis points, or 0.05 percentage point, to 8 percent in Mumbai, according to the central bank’s trading system. It earlier touched 7.90 percent, the lowest level since Dec. 28, 2010, according to data compiled by Bloomberg.
The overnight interbank borrowing rate was at 8 percent today, after averaging 8.03 percent in December.
The 10-year yield fell 52 basis points last year, the first annual decline since 2008, on speculation Reserve Bank of India Governor Duvvuri Subbarao will cut interest rates to support a slowing economy. The monetary authority has held its repurchase rate unchanged at 8 percent since April, when it was lowered by 50 basis points in the first reduction since 2009. Eleven of 20 analysts surveyed in a Bloomberg survey forecast a 50 basis point decrease by March 31.
The government cut its estimate for economic growth in the year through March to as little as 5.7 percent, the least in a decade, on Dec. 17. Subbarao said a day later that policy makers’ focus needs to shift toward supporting the economy from curbing inflation. The next policy review is due on Jan. 29.
“Indian markets are positioning for a rate-cutting cycle, given the shift in RBI’s focus to growth from inflation,” Nagaraj Kulkarni, a Singapore-based strategist at Standard Chartered Plc, said in an interview yesterday. “We expect a 25 basis point reduction in the repo rate this quarter.”
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points today to 7.59 percent, data compiled by Bloomberg show. It fell 14 basis points last year to 7.61 percent.
The rupee gained after the U.S. Senate passed a budget deal to avert $600 billion in tax increases and spending cuts, boosting demand for riskier assets.
The Senate bill, passed 89-8, would make permanent the tax cuts for most households that expired at midnight, continue expanded unemployment benefits and delay automatic spending cuts for two months. The vote early today in Washington shifts the pressure to House Speaker John Boehner, who hasn’t said if he’ll accept the agreement or change it.
The rupee rose 0.6 percent today to 54.6850 per dollar in Mumbai, according to data compiled by Bloomberg. It declined 3.5 percent last year, the worst performance after Indonesia’s rupiah among Asia’s 10 most-used currencies excluding the yen.
Overseas funds bought $24.5 billion more Indian shares than they sold last year, according to data compiled by Bloomberg. One-month implied volatility in the rupee, a gauge of expected moves in exchange rates used to price options, was unchanged at 10.10 percent. The measure decreased 190 basis points in 2012.
Three-month onshore forwards traded at 55.73, compared with 55.68 yesterday, data compiled by Bloomberg show. Offshore non- deliverable contracts were at 55.54 versus 55.70. 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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