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Indian Bonds Jump Most in a Month as RBI Adds Cash; Rupee Drops

India’s 10-year sovereign bond yield fell the most in a month as the central bank boosts cash in the banking system. The rupee weakened.

The Reserve Bank of India will add 200 billion rupees ($3.3 billion) through a 28-day term repo auction tomorrow, it said in a statement today. The monetary authority will also buy as much as 100 billion rupees of bonds due 2017, 2019, 2023 and 2027 through open-market operations on Jan. 22, it said in a statement after the market shut on Jan. 17.

“Yields are dropping due to the liquidity additions,” said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai.

The yield on the 8.83 percent securities maturing in November 2023 fell 11 basis points, or 0.11 percentage point, to 8.52 percent in Mumbai, according to the central bank’s trading system. That’s the biggest drop since Dec. 18 and the rate is the lowest for a 10-year note since Oct. 11.

The RBI said it will buy debt to add funds as the government’s cash balances increase, a sign that federal spending has slowed. Finance Minister Palaniappan Chidambaram aims to narrow the budget deficit to 4.8 percent of gross domestic product in the fiscal year through March 31. The April-November shortfall was 94 percent of the goal.

Rupee

The rupee fell 0.1 percent to 61.6250 per dollar, according to prices from local banks compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, was little changed from Jan. 17 at 8.5325 percent.

Three-month offshore non-deliverable forwards rose 0.1 percent to 62.74 per dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

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

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