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India’s 10-Year Bonds Post Second Weekly Gain as Curbs Eased

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Oct. 11 (Bloomberg) -- India’s 10-year government bonds capped a second week of gains, the longest stretch since May, after the Reserve Bank of India rolled back some measures taken to shore up the rupee following a rebound in the currency.

RBI Governor Raghuram Rajan reduced the marginal standing facility by 50 basis points to 9 percent this week, the second cut in less than a month, as the currency rebounded 13 percent from a record low of 68.845 per dollar on Aug. 28. He also cut the bank rate to 9 percent, while keeping the main repurchase rate at 7.5 percent. India sold 150 billion rupees ($2.5 billion) of notes as planned at a weekly auction today.

The yield on the 7.16 percent notes due May 2023 dropped 12 basis points, or 0.12 percentage point, this week to 8.49 percent in Mumbai, according to prices from the central bank’s trading system. The rate climbed seven basis points today.

“We believe the balance of risks has turned in favor of Indian government bonds following the adjustment in yields, the stabilization of the rupee and an improvement in the current-account” deficit, Barclays Plc analysts including Singapore-based Rohit Arora wrote in a report dated yesterday. “The unwinding of liquidity-tightening measures” is likely to improve domestic investor confidence, they added.

India’s current-account deficit widened less than forecast to $21.8 billion in the three months ended June, compared with $18.1 billion in the previous period, data showed last week. The median of 26 estimates in a Bloomberg News survey was for a $23 billion shortfall in the broadest measure of trade.

Index Inclusion

Bonds rose yesterday after a report said India is in talks with JPMorgan Chase & Co. and other managers for inclusion in their indexes. Ten-year notes slumped in each of the last four months, the longest run of losses since 2009, as the RBI raised interest rates and curbed funding support to banks to stem the rupee’s slide. The currency rose 0.5 percent to 61.08 per dollar today, completing a second week of gains.

Rajan unexpectedly raised the key repurchase rate by 25 basis points on Sept. 20, the first increase since 2011, to curb the fastest consumer-price increases among the four largest emerging markets. He also cut the marginal standing facility rate to 9.5 percent from 10.25 percent the same day as part of steps to ease cash supply.

One-year interest-rate swap, a derivative contracts used to guard against fluctuations in funding costs, plunged 28 basis points to 8.38 percent in a sixth week of declines, data compiled by Bloomberg show. The rate fell one basis point today.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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