India’s 10-year bonds headed for their first weekly advance in eight on speculation a surge in yields last month attracted buyers.
The yield on the notes due 2023 increased 75 basis points in July, the most since March 2009. The Federal Reserve pledged this week to continue its $85 billion a month debt-buying program that has boosted fund flows to emerging markets. The Reserve Bank of India raised two interest rates and tightened cash supply last month to arrest a slide in the rupee, which fell to a record low on July 8.
The yield on the 7.16 percent government bonds due May 2023 fell five basis points, or 0.05 percentage point, this week to 8.11 percent as of 10 a.m. in Mumbai, according to prices from the central bank’s trading system. The yield rose two basis points today and reached 8.42 percent on July 24, the highest level for a benchmark 10-year note in 14 months.
“It’s a good entry point for investors,” said N.S. Venkatesh, head of treasury at IDBI Bank Ltd. (IDBI) in Mumbai. “Yields should soften a bit from here once the exchange rate stabilizes as the longer-term story is that interest rates have to come down to support economic growth.”
RBI GovernorDuvvuri Subbarao held the repurchase rate at 7.25 percent on July 30, while the central bank reduced its expansion forecast for the year ending March 2014 to 5.5 percent from 5.7 percent.
Primary dealers underwrote 121 billion rupees ($2 billion) of the 150 billion rupees of government bonds to be offered today, the RBI said in a statement yesterday.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose two basis points this week and dropped four basis points today to 9.34 percent, according to data compiled by Bloomberg.
To contact the reporter on this story: Shikhar Balwani in Mumbai at email@example.com