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India 10-Year Bond Yield Nears Seven-Week Low on Debt Purchases

India’s 10-year government bonds gained, pushing the yield toward a seven-week low, before the central bank buys debt tomorrow to help ease a cash crunch.

The Reserve Bank of India will purchase as much as 80 billion rupees ($1.5 billion) of notes due in 2018, 2020 and 2026, according to a statement on its website on Dec. 18. Lenders borrowed 1.65 trillion rupees from the RBI’s overnight repurchase window yesterday, the most since March, reflecting a shortage of cash in the banking system.

“Bonds are holding up as the open-market purchases are expected to spur demand,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd.

The yield on the 8.15 percent notes due June 2022 fell one basis point, or 0.01 percentage point, to 8.15 percent in Mumbai, according to the central bank’s trading system. It touched 8.14 percent on Dec. 14 and Dec. 17, which were the lowest levels since Oct. 29. The yield has dropped 42 basis points this year.

The central bank has bought 1.1 trillion rupees of government securities this fiscal year that started April 1. Indian local-currency sovereign bonds have returned 10 percent in 2012, the best performance after Indonesia among 10 Asian indexes compiled by HSBC Holdings Plc.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose five basis points to 7.72 percent, data compiled by Bloomberg show.

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