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Indian Bonds Snap Three-Day Drop on Speculation RBI to Buy Debt

Indian government bonds rose for the first time in four days on speculation the central bank will purchase bonds to ease a cash crunch in the banking system.

The yield on the 10-year notes touched a one-week high yesterday as the Reserve Bank of India unexpectedly held its repurchase rate. The monetary authority has bought 432.9 billion rupees ($7.7 billion) at open-market operation auctions in the current fiscal year that began April 1. Lenders borrowed 1.326 trillion rupees from the central bank’s repo window today, the most since April 4, according to RBI data.

“There is some expectation of open-market operations,” said Anoop Verma, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “That is probably pushing down yields.”

The yield on the government’s 8.15 percent bonds due June 2022 fell six basis points, or 0.06 percentage point, to 8.11 percent in Mumbai, according to the central bank’s trading system.

The monetary authority last reduced the repo rate by 50 basis points to 8 percent in April after raising it 13 times from March 2010 to October 2011.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell one basis point to 7.81 percent, data compiled by Bloomberg show.

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