India’s government bonds snapped a five-day drop, reversing an earlier decline, as a surge in yields to a 12-year high attracted investors.
The yield on the notes due May 2023 slid 32 basis points, or 0.32 percentage point, to 8.92 percent in Mumbai today, according to prices from the central bank’s trading system. The rate touched 9.48 percent earlier, the highest for a benchmark 10-year security since 2001, data compiled by Bloomberg show.
The rupee tumbled to a record 64.12 per dollar today on concern foreign outflows will accelerate as the U.S. Federal Reserve prepares to trim monetary stimulus. Foreign funds have pulled about $12 billion from local debt and equities since May 22 when Fed Chairman Ben S. Bernanke first signaled the central bank may pare its $85 billion monthly bond-buying program. India this month sought to stem a slide in its currency by lowering the amount companies and individuals can invest abroad.
“It’s a dead-cat bounce after the carnage we’ve seen,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “Sustainability is the question as things have hardly changed.”
The yield on the bonds maturing in May 2023 jumped 72 basis points this month as the rupee plunged to new lows and foreign funds sold local debt. The rate jumped 75 basis points in July as the Reserve Bank of India raised two interest rates and drained liquidity from the banking system in a bid to stem the currency’s slide.
India will seek to boost inflows with steps including allowing state-owned financial companies to issue “quasi-sovereign” bonds to fund long-term infrastructure investment, Finance Minister Palaniappan Chidambaram said Aug. 12.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, dropped 23 basis points to 9.94 percent, according to data compiled by Bloomberg. It touched a five-year high yesterday.