India 10-Year Yield at Two-Week Low Amid Cash-Supply Speculation

India’s 10-year bonds advanced, pushing the yield to a two-week low, amid speculation the central bank will take more steps to boost cash supply.

Government notes due in a decade headed for the first weekly advance in three after the Reserve Bank of India said Sept. 30 that it will offer to buy 100 billion rupees ($1.6 billion) of securities at an open-market auction on Oct. 7. They fell in each of the last four months, the longest run since 2009, as the RBI raised interest rates and curbed funding support to banks to support the rupee. The currency has rebounded 12 percent from a record low of 68.845 per dollar on Aug. 28.

“Investors are speculating the central bank will further boost liquidity, including maybe a cut in the marginal standing facility rate,” said Sagar Shah, associate vice president for treasury at Ratnakar Bank Ltd. in Mumbai. “Sentiment in India has revived quite a bit and across asset classes, as can be seen by the rally in the stock and currency markets.”

The yield on the 7.16 percent sovereign bonds due May 2023 fell three basis points, or 0.03 percentage point, to 8.61 percent as of 10:15 a.m. in Mumbai, according to prices from the central bank’s trading system. That’s the lowest level since Sept. 20. The rate has dropped 11 basis points this week.

Swaps Drop

RBI Governor Raghuram Rajan’s reduced the marginal standing facility rate to 9.5 percent from 10.25 percent on Sept. 20, while unexpectedly raising the benchmark repurchase rate to 7.5 percent from 7.25 percent, the first increase since 2011. He also lowered the daily balance requirement for the cash reserve ratio to 95 percent from 99 percent, effective Sept. 21, and cut the bank rate.

The RBI announced the bond-buying plan this week after saying Sept. 25 that it will take steps as required to ensure adequate cash supply. The central bank said it is injecting about 1.5 trillion rupees into markets each day via money-market operations and export-credit refinance.

One-year interest-rate swaps, derivative contracts used to guard against fluctuations in funding costs, slipped two basis points to 8.68 percent, according to data compiled by Bloomberg. They fell eight basis points this week.

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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