India’s 2022 Bond Yield Drops to Two-Week Low as Cash Increases

The yield on Indian bonds due 2022 fell to the lowest in more than two weeks on optimism improving supply of cash in the banking system will spur demand for debt.

Local lenders’ daily borrowings from the central bank to meet fund shortages fell to 108.8 billion rupees ($1.8 billion) yesterday, the least since March 31, official data show. The overnight interbank borrowing rate was at 6.40 percent today, compared with 7 percent at the end of last week. The Fixed Income Money Market and Derivatives Association widened a daily trading band for local debt, according to its website, after benchmark yields fell the most in a week.

“The liquidity situation has improved and that’s providing a boost for bond prices,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai.

The yield on the 8.15 percent notes fell 10 basis points, or 0.1 percentage point, to 7.60 percent as of 4:15 p.m. in Mumbai, according to the central bank’s trading system. That’s the lowest level since June 19. The yield jumped 18 basis points last month, the most since the securities were issued in June 2012, as the Indian rupee plunged 4.9 percent.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell 13 basis points to 7.43 percent, data compiled by Bloomberg show.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

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

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