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India 10-Year Bond Yield Rises to One-Week High as Cash Declines

India’s 10-year bonds fell, pushing the yield to a one-week high, on speculation a decline in cash in the financial system will reduce demand for debt.

Banks borrowed an average 821 billion rupees ($15 billion) a day from the central bank this month to meet shortages, compared with 671 billion rupees for the whole of October, official data show. Bonds also dropped on concern the government will boost borrowings to meet a revenue shortfall after failing to raise even 25 percent of its target from an auction of mobile-phone wave spectrum last week, said N.S. Venkatesh, treasurer at IDBI Bank Ltd.

“Demand is subdued as liquidity is tight,” said Mumbai-based Venkatesh. “The fiscal-deficit situation is also not giving any comfort.”

The yield on the 8.15 percent government bonds due June 2022 rose one basis point, or 0.01 percentage point, to 8.20 percent in Mumbai, according to the central bank’s trading system.

The finance ministry plans to raise a record 5.69 trillion rupees selling debt in the year ending March 31, according to the government’s budget estimates.

The notes were also pressured as Parliamentary Affairs Minister Kamal Nath said the Trinamool Congress party, a former ally of Prime Minister Manmohan Singh, may push for a vote of no-confidence in the government when parliament meets on Nov. 22. The move is not a threat to the government, which is confident of getting majority in the floor of the house, he told reporters in New Delhi today.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose two basis points to 7.77 percent, data compiled by Bloomberg show.

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