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Indian Bond Yields Drop to One-Month Low on RBI Plan to Buy Debt

India’s 10-year bonds gained for a second day, pushing the yield to the lowest level in more than a month, on speculation a central bank plan to buy debt will spur demand for the securities.

The Reserve Bank of India will offer to purchase a total 120 billion rupees ($2.2 billion) of notes due in 2018, 2020, 2022 and 2027 at an open-market auction tomorrow, it said in a statement last week. The RBI may buy as much as 500 billion rupees of bonds during the rest of the fiscal year that ends March 31, Standard Chartered Plc estimates.

“We believe the open-market operations make the demand-supply equation favorable for government bonds,” analysts at Standard Chartered including Singapore-based Nagaraj Kulkarni wrote in a research note today.

The yield on the 8.15 percent notes due June 2022 fell one basis point, or 0.01 percentage point, to 8.17 percent in Mumbai, according to the central bank’s trading system. That is the lowest level since Oct. 29. It dropped six basis points last week and four basis points in November.

The central bank, which last held a debt-purchase auction in June, picked up 820 billion rupees of securities in the first quarter of this fiscal year 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, fell one basis point to 7.72 percent today, data compiled by Bloomberg show.

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