Indian Bonds Set for Best Week in a Month on Easing Cash Squeeze

India’s 10-year bonds were poised for the best week in a month on speculation the easing of a cash squeeze at banks spurred demand.

Domestic lenders borrowed an average of 72.5 billion rupees ($1.3 billion) from the Reserve Bank of India this week via repurchase contracts to meet shortages, compared with 478 billion rupees last week. The government has probably stepped up spending to counter a weakness in economic growth, helping to reduce the cash squeeze, according to Srinivasa Raghavan, an executive vice president of treasury at Dhanlaxmi Bank Ltd.

“The drop in bond yields is a result of the easing of the cash crunch,” said Mumbai-based Raghavan.

The yield on the 8.15 percent notes due June 2022 fell seven basis points, or 0.07 percentage point, this week to 8.17 percent as of 10:03 a.m. in Mumbai, according to the central bank’s trading system. The rate rose one basis point today.

India’s $1.8 trillion economy expanded 5.5 percent last quarter, near the slowest pace since 2009 of 5.3 percent in the previous three months, government data released last week show.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell five basis points this week to 7.77 percent, according to data compiled by Bloomberg. They rose two basis points today.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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