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Indian Bond Yields at One-Month Low as RBI Resumes Debt Buying

India’s 10-year bonds gained, pushing yields to a one-month low, after the central bank said it will resume open-market purchases that were halted in June.

The Reserve Bank of India said in a statement yesterday that it will offer to buy as much as 120 billion rupees ($2.2 billion) of securities at an auction on Dec. 4. The monetary authority will probably pick up as much as 800 billion rupees of bonds before this fiscal year ends March 31, Nomura Holdings Inc. estimates.

“We continue to recommend long sovereign bonds on our view that demand for bonds, especially from the banking system and the RBI in the form of open-market operations, will outweigh supply,” Vivek Rajpal, a strategist in Mumbai at Nomura, wrote in a note received late yesterday.

The yield on the 8.15 percent government notes due June 2022 fell three basis points, or 0.03 percentage point, to 8.18 percent in Mumbai, according to the central bank’s trading system. That is the lowest level since Oct. 29. The yield dropped six basis points this week and four basis points this month.

The central bank bought 820 billion rupees of debt from April 1 through June to boost the availability of funds in the financial system.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, declined one basis point to 7.73 percent today, data compiled by Bloomberg show. It decreased four basis points this week.

Slowing Growth

Indian expansion slowed last quarter to match a three-year low as growth in domestic spending and exports moderated.

Gross domestic product rose 5.3 percent in the three months to Sept. 30 from a year earlier, in line with the median of 42 estimates in a Bloomberg News survey and down from 5.5 percent in the previous quarter, data from the Central Statistical Office showed in today.

“The continued slowdown in growth has considerably increased the pressure on the central bank for further monetary easing,” Barclays Plc economists Siddhartha Sanyal and Rahul Bajoria said in a research note today.

The central bank has cut the cash reserve ratio by 175 basis points this year to 4.25 percent. The repurchase rate, at which lenders borrow from the central bank overnight, was last cut by 50 basis points in April to 8 percent.

Barclays predicts the monetary authority will cut the repo rate by 50 basis points in the first quarter of 2013.

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