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India 10-Year Bond Yields at 9-Month Low as RBI to Purchase Debt

India’s 10-year bonds gained for a fourth day, extending this year’s gains that have driven yields to a nine-month low, as the central bank’s plan to purchase debt shored up demand.

The Reserve Bank of India will buy as much as 100 billion rupees ($2 billion) of fixed-income securities tomorrow, it said in a statement on Jan. 31. The RBI has bought 719 billion rupees of notes since November to ease a cash squeeze in the banking system. Lenders’ borrowing from the monetary authority averaged 1.3 trillion rupees this week, more than double the 600 billion rupees “comfort zone” indicated by the Reserve Bank at its policy review on Jan. 24.

“Bond purchases are driving yields lower,” said M. Natarajan, head of treasury at Bank of Nova Scotia in Mumbai. “The RBI may have to buy more as the debt supply is huge and liquidity is tight.”

The yield on the 8.79 percent bonds due November 2021 declined two basis points, or 0.02 percentage point, to 8.13 percent in Mumbai, according to the central bank’s trading system. That’s the lowest level for a benchmark 10-year note since April 29, according to data compiled by Bloomberg.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell six basis points to 8.08 percent, according to data compiled by Bloomberg.

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