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Indian Bonds Gain as Highest Yields in Two Weeks Lure Investors

India’s bonds gained on speculation the highest yields in more than two weeks will lure investors.

The nation’s economy may expand 6.7 percent in the year that began April 1, less than the 7.6 percent forecast in February, Prime Minister Manmohan Singh’s economic panel said in a report on Aug. 17. Lenders should follow State Bank of India, the nation’s largest bank that cut interest rates this month, in lowering borrowing costs to help revive investment, Finance Minister Palaniappan Chidambaram said on Aug. 18.

“Bond investors were probably adding to their holdings as the yield levels are attractive,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd. “The growth dynamics and expectations of interest-rate easing are also broadly supportive of bonds.”

The yield on the 8.15 percent notes due June 2022 fell three basis points to 8.22 percent in Mumbai, according to the central bank’s trading system. The rate earlier touched 8.26 percent, matching a level touched last week, which was the highest level since Aug. 3.

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

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