India’s Bond Yields Near One-Week Low on Central Bank Purchases

India’s benchmark bonds were steady, with yields near a one-week low, on optimism purchases by the central bank will boost cash in the financial system and spur demand for debt.

The Reserve Bank of India picked up 112 billion rupees ($2 billion) of securities at an open-market auction on May 25. The RBI has injected 321 billion rupees through such purchases so far in the year that began April 1, replenishing banks’ funds that may have been drained by the monetary authority’s dollar sales aimed at curbing exchange-rate losses. The rupee touched a record low of 56.3875 per dollar last week.

“The requirement for open-market buying will continue to be there as intervention in the currency market sucks out liquidity,” said Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura Holdings Inc.

The yield on the 8.79 percent bonds due November 2021 was little changed at 8.51 percent in Mumbai, after declining in each of the last four weeks, according to the central bank’s trading system. The Reserve Bank may buy sovereign notes worth 1.5 trillion rupees by the end of this fiscal year, Rajpal predicts.

The central bank sold a net $20.1 billion of foreign currency in the seven months through March, the latest data on its website show. The monetary authority intervenes in the currency market to limit volatility and has no target levels, Deputy Governor K.C. Chakrabarty said in Mumbai on May 16.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell four basis points, or 0.04 percentage point, to 7.98 percent, according to data compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE