India’s 10-year bonds gained the most in a week as higher yields and the Federal Reserve’s pledge to maintain stimulus buoyed demand.
The rate on benchmark debt due 2023 rose 75 basis points in July, the biggest jump since March 2009, helping attract investors, according to Dhanlaxmi Bank Ltd. Global funds’ purchases of local notes exceeded sales on three of the four days through July 30, exchange data show, paring last month’s outflows to $2 billion. After a two-day meeting that concluded yesterday, the Fed said persistently low inflation poses a risk to the world’s largest economy and pledged to keep buying $85 billion of fixed-income securities every month.
The yield on the 7.16 percent Indian government bonds due May 2023 slid 11 basis points, or 0.11 percentage point, to 8.09 percent in Mumbai, according to prices from the central bank’s trading system. The rate has retreated 33 basis points from the year’s high of 8.42 percent on July 24.
“The worst seems to be behind the bond markets,” said Srinivasa Raghavan, Mumbai-based executive vice-president of treasury at Dhanlaxmi Bank. “The fact that the Fed stayed away from making any comments on tapering helps sentiment.”
Primary dealers underwrote 120.67 billion rupees of the 150-billion rupees worth of government bonds to be sold tomorrow. Bond yields surged last month as the Reserve Bank of India raised two interest rates and tightened cash supply to arrest a slide in the rupee, which fell to a record 61.2125 per dollar on July 8. Governor Duvvuri Subbarao held the repurchase rate at 7.25 percent on July 30.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, slumped 13 basis points to 9.37 percent today, according to data compiled by Bloomberg.