Twelve-Year Bonds Climb on Speculation Central Bank Will Ease Cash Crunch

India’s 12-year government bonds rose on speculation the central bank will purchase existing securities to ease a cash shortage in the financial system.

The yield on the most-traded 2022 note fell after the Reserve Bank of India last week bought bonds through an open- market auction for the first time since September 2009. The central bank on Nov. 4 bought back 83.5 billion rupees ($1.9 billion) of debt, after offering to purchase as much as 120 billion rupees.

“Investors are optimistic the central bank will help ease the cash crunch that we are experiencing,” said Roy Paul, deputy general manager at Mumbai-based Federal Bank Ltd.

The yield on the 8.13 percent note due September 2022 fell one basis point to 8 percent as of 9:40 a.m. in Mumbai, according to the central bank’s trading system. The price rose 0.10, or 10 paise per 100 rupee face amount, to 100.91.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased. The rate, a fixed payment made to receive a floating rate, climbed two basis points to 6.66 percent.

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