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Government Bonds Rise on Speculation India Central Bank to Pause on Rates
India’s 10-year bonds declined on speculation some investors will pare holdings to raise cash for purchases at a federal debt auction on Sept. 3.
The government plans to raise as much as 120 billion rupees ($2.6 billion) selling fixed-income securities maturing in 2017, 2022 and 2040, according to the central bank. The sale is part of India’s record 4.57 trillion rupee borrowing program for the fiscal year that began April 1. Bonds also fell on speculation the central bank will raise borrowing costs this month for a fifth time this year to cool inflation.
“Some traders may have lightened bond positions ahead of this week’s debt auction, pushing yields higher from opening lows,” said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai. “Also, the market has factored in a quarter percentage-point rate increase.”
The yield on the 7.8 percent bond due in May 2020 climbed three basis points to 7.96 percent at the 5 p.m. close in Mumbai, according to the central bank’s trading system. The price fell 0.19, or 19 paise per 100 rupee face amount, to 98.91. A basis point is 0.01 percentage point.
The Reserve Bank of India next reviews its monetary policy on Sept. 16. The reverse-repurchase rate, at which it drains cash from banks, is at 4.5 percent, while the repurchase rate, which it charges on overnight loans, is at 5.75 percent. The benchmark wholesale price index rose 9.97 percent in July after holding above 10 percent for five months.
HSBC Holdings Plc and Markit Economics said today the Purchasing Managers’ Index, a measure of India’s manufacturing output, slipped to 57.2 in August from 57.6 in July. A reading above 50 indicates expansion.
The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased the most in two weeks. The rate, a fixed payment made to receive floating rates, climbed five basis points to 6.18 percent.
To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net
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