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India Bond Yields Drop to One-Week Low Before RBI Purchases Debt

India’s benchmark bonds gained, pushing yields to a one-week low, on speculation debt purchases by the central bank will spur demand.

The Reserve Bank of India will offer to buy 120 billion rupees ($2.2 billion) of securities tomorrow, according to a statement on May 23. Sovereign notes rallied for a third day even after Indian Oil Corp., the nation’s biggest refiner, increased gasoline prices for the first time in almost seven months yesterday. The move will help reduce the government’s subsidy bill, according to Krishnamurthy Harihar, treasurer at FirstRand Ltd.

“Bond buying by the RBI is a positive,” he said. “The increase in gasoline prices will be perceived as a reform move, helping balance the fiscal situation.”

The yield on the 8.79 percent notes due November 2021 dropped one basis point, or 0.01 percentage point, to 8.50 percent in Mumbai, according to the central bank’s trading system. That was the lowest level since May 17.

The central bank has bought 209 billion rupees of notes so far this month as its dollar sales aimed at stemming the slide in the rupee drained funds from the financial system. The rupee touched a record low of 56.3875 per dollar today.

Lenders borrowed 1.05 trillion rupees from the central bank’s overnight repurchase-auction window yesterday, the most since May 14, according to RBI data.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, were little changed at 8.02 percent, according to data compiled by Bloomberg.

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