India Bond Yields at 26-Month High on Cash Crunch Damps Demand

India’s 10-year bond yields rose to their highest level in 26 months as a shortage of cash in the banking system damped demand.

The securities extended a weekly decline as the overnight call money rate climbed to 6.85 percent, the highest since Nov. 25, reflecting the lower availability of cash. Banks borrowed an average 783 billion rupees ($17.4 billion) this quarter from the central bank’s repurchase auction window, compared with 239 billion rupees in the previous three months, according to data compiled by Bloomberg.

“With the liquidity tightness lingering, there has been some sell off,” said Killol Pandya, who manages the equivalent of $135 million in debt at Shinsei Asset Management Pvt. in Mumbai.

The yield on the 7.80 percent note due May 2020 rose three basis points to 8.21 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. The price fell 0.24, or 24 paise per 100 rupee face amount, to 97.32.

Reserve Bank of India Deputy Governor Subir Gokarn signaled last week the central bank will refrain from cutting the cash- reserve ratio.

The proportion of cash banks must set aside as reserves is currently 6 percent.

The cost of one-year interest-rate swaps, a fixed payment made to receive a floating rate, rose eight basis points to 6.91 percent.

To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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