India’s 14-year government bonds gained, pushing the yield to a five-week low, after the central bank said it will buy more debt next week.
The Reserve Bank of India will buy as much as 120 billion rupees ($2.2 billion) of notes due in 2017, 2020, 2022 and 2026 on Dec. 11, according to a statement on its website. The monetary authority bought 116.43 billion rupees of securities on Dec. 4, the first purchase since June.
“The bond purchase news has lifted investor sentiment as this will help ease the cash squeeze in the banking system,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “Since there is no debt sale scheduled next week, bonds will remain largely supported.”
The yield on the 8.33 percent notes maturing in July 2026, the most-traded government security, fell two basis point today to 8.25 percent in Mumbai, according to the central bank’s trading system. That was the lowest level since Oct. 29. The rate fell four basis points, or 0.04 percentage point, this week. There was no trading in the benchmark 10-year note today as the government is scheduled to pay coupon on Dec. 11.
The central bank has bought 936.43 billion rupees of securities so far in the fiscal year that began April 1.
The open market purchases are “based on the assessment of the current liquidity situation,” RBI Deputy Governor Subir Gokarn told reporters today. “The call rate has been very close to the repo rate, which is the objective, and to the extent that it has not surged, it has not shot up, would suggest that liquidity is generally within the comfort zone.”
The call money rate, at which lenders borrow from each other overnight, was at 7 percent today compared with 8.15 percent yesterday, according to data compiled by Bloomberg.
Lenders borrowed an average of 928 billion rupees a day from the RBI’s repurchase window in November, compared with 671 billion rupees the previous month, according to data compiled by Bloomberg. They borrowed 732 billion rupees yesterday.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell six basis points to 7.65 percent, the lowest level since Oct. 29, data compiled by Bloomberg show. The rate declined eight basis points this week.