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India Bonds Complete Best Week in a Month on Easing Cash Squeeze

Sept. 7 (Bloomberg) -- India’s 10-year bonds completed the best week in a month on speculation demand improved as a cash squeeze at banks eased.

Domestic lenders borrowed an average of 83.8 billion rupees ($1.5 billion) a day from the Reserve Bank of India this week via repurchase contracts to meet shortages, compared with 478 billion rupees last week. The government has probably stepped up spending to counter an economic slowdown, pumping cash into banks, according to Srinivasa Raghavan, an executive vice president of treasury at Dhanlaxmi Bank Ltd.

“The drop in bond yields is a result of the easing of the cash crunch,” said Mumbai-based Raghavan.

The yield on the 8.15 percent notes due June 2022 fell four basis points, or 0.04 percentage point, this week to 8.20 percent as in Mumbai, according to the central bank’s trading system. That’s the biggest decline since the five-day period ended Aug. 10. It rose four basis points today.

India’s $1.8 trillion economy expanded 5.5 percent last quarter, near the slowest pace since 2009 of 5.3 percent in the previous three months, government data released last week show.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell three basis points this week to 7.79 percent, according to data compiled by Bloomberg. They rose four basis points today.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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