India’s 10-year bonds completed the biggest weekly loss in more than five months as a shortage of cash in the banking system reduced demand for debt.
The securities halted a two-week gain as the overnight call money-market rate, at which banks lend to each other, climbed 43 basis points in five days to 6.73 percent. Banks borrowed an average 972 billion rupees ($21.5 billion) this quarter from the central bank’s repurchase auction window, compared with 239 billion rupees in the previous three months, according to data compiled by Bloomberg.
“Investors seem to believe the central bank may not take any measures to ease liquidity until the next policy review on Dec. 16,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank in Mumbai. “So, there is no positive for bonds for now.”
The yield on the 7.80 percent note due May 2020 rose 21 basis points this week to 8.18 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. It touched 8.13 percent yesterday, the highest level since Oct. 28. The price fell 1.33, or 1.33 rupees per 100 rupee face amount, to 97.56.
Reserve Bank of India Deputy Governor Subir Gokarn signaled on Dec. 1 the central bank will refrain from cutting banks’ cash-reserve ratios. The proportion of funds lenders must set aside as reserves is currently 6 percent.
India raised 110 billion rupees ($2.4 billion) selling bonds maturing in 2017, 2022 and 2040, the central bank said.
The cost of one-year interest-rate swaps , a fixed payment made to receive a floating rate, rose two basis points to 6.83 percent.