India’s benchmark bonds headed for the biggest weekly decline since November, on speculation the central bank will reduce open-market debt purchases after lowering cash reserve requirements for lenders.
The Reserve Bank of India reduced its repurchase rate by 25 basis points to 7.75 percent on Jan. 29 and cut the amount of deposits lenders must set aside as reserves to 4 percent from 4.25 percent, effective Feb. 9, releasing 180 billion rupees ($3.4 billion) into the banking system. The government, which has completed more than 90 percent of budgeted borrowings for the year ending March 31, will today auction 120 billion rupees of bonds maturing in 2020, 2025 and 2042.
The RBI may not conduct frequent open-market operations and “bond yields will largely go up in the near term,” said Harihar Krishnamoorthy, Mumbai-based treasurer at the Indian unit of FirstRand Ltd. (FSR) “However, this will not be a big increase as debt sales are capped for this year.”
The yield on the 8.15 percent bonds due June 2022 rose three basis points, or 0.03 percentage point, this week to 7.92 percent in Mumbai, the biggest jump since the five days through Nov. 23, according to the central bank’s trading system. It rose one basis point today after falling 14 basis points last month, the biggest drop in the 10-year rate since June.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose six basis points this week to 7.64 percent in Mumbai, data compiled by Bloomberg show. The rate rose one basis point today.
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