India’s 10-year bonds advanced as financial markets reopened after a public holiday amid optimism a central bank plan to buy sovereign debt will spur demand.
The Reserve Bank of India will offer to purchase 100 billion rupees ($1.6 billion) of securities at an open-market auction on Oct. 7, it said in a Sept. 30 statement. The rupee’s 11.5 percent rebound from a record low of 68.845 per dollar on Aug. 28 is also contributing to gains, according to Development Credit Bank Ltd. The currency advanced 1 percent today.
“The debt-purchase announcement clearly shows the central bank isn’t comfortable with current yield levels,” said Debendra Kumar Dash, a fixed-income trader in Mumbai at Development Credit. “The rupee has strengthened quite a bit of late and that too is aiding sentiment by taming inflationary expectations.”
The yield on the 7.16 percent sovereign bonds due May 2023 fell nine basis points, or 0.09 percentage point, to 8.64 percent in Mumbai today from Oct. 1, according to prices from the central bank’s trading system. That’s the lowest level since Sept. 20.
Government bonds maturing in a decade fell in each of the last four months, the longest run since 2009, as the RBI raised interest rates and curbed funding support to banks to support the rupee. The securities will extend the slump as the RBI lifts borrowing costs to quell inflation and the prospect of U.S. stimulus tapering fuels fund outflows, a Bloomberg survey shows.
Global investors net sold bonds worth $109 million on Oct. 1, exchange data show. They have pulled almost $12 billion from Indian debt since mid-May when Federal Reserve Chairman Ben S. Bernanke first signaled the U.S. central bank may pare its $85 billion monthly bond-buying program that boosted demand for emerging-market assets.
The RBI announced the bond-purchase plan after saying Sept. 25 that it will take steps as required to ensure adequate cash supply in the financial system. The central bank is injecting about 1.5 trillion rupees into markets each day via money-market operations and export-credit refinance, it said in a statement.
One-year interest-rate swaps, derivative contracts used to guard against fluctuations in funding costs, slid five basis points to 8.69 percent, according to data compiled by Bloomberg.