India’s Bonds Advance as RBI Set to Buy Debt to Balance Supply

India’s bonds rose after the central bank said it will buy securities from the secondary market, helping counter record sales this year.

The Reserve Bank of India offered to purchase a total of 120 billion rupees ($2.2 billion) of notes tomorrow, when the finance ministry will also auction 150 billion rupees of securities due in 2018, 2021, 2027 and 2036. Falling oil prices are also aiding the rally on optimism inflation will ease, according to Development Credit Bank Ltd. in Mumbai.

“Investors are optimistic the central bank will use more open-market purchases to support the borrowing plan,” said Debendra Kumar Dash, a fixed-income trader at the bank. “The oil-price drop is supporting the slide in yields.”

The yield on the 8.79 percent bonds due November 2021 dropped two basis points, or 0.02 percentage point, to 8.55 percent as of 9:55 a.m. in Mumbai, according to the central bank’s trading system.

The government plans to borrow 5.7 trillion rupees in the fiscal year that ends in March.

Crude oil has declined 9 percent since May 1 to $96.63 a barrel in New York. India is due to report inflation numbers on May 14. The wholesale-price index, the country’s key gauge covering costs in the economy, rose 6.89 percent in March from a year earlier, according to official data. That was less than 6.95 percent in February and 9.68 percent in March last year.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose four basis points to 8.08 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net

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

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