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Indian Bonds Decline as Yields at Two-Week Low Deter Investors

Feb. 5 (Bloomberg) -- India’s 10-year bonds fell, snapping a three-day rally, as yields at the lowest level in almost two weeks deterred buyers.

Benchmark yields dropped 14 basis points in the previous three sessions on optimism demand for existing securities will increase once the government completes its annual debt-sales program. The finance ministry will sell 100 billion rupees ($1.6 billion) of securities on Feb. 7 at the final auction of the fiscal year ending March 31.

“There has been some profit-booking,” said Harish Agarwal, a fixed-income trader in Mumbai at FirstRand Ltd. Bonds should find support “going forward as there’s no supply after this week’s debt auction,” he said.

The yield on the 8.83 percent bonds maturing in November 2023 rose three basis points, or 0.03 percentage point, to 8.71 percent in Mumbai, according to the central bank’s trading system. At 8.68 percent, the rate was at its lowest level since Jan. 23 yesterday.

Bonds gained earlier this week also on speculation an auction of wireless spectrum to mobile-phone companies will boost federal revenue, supporting Finance Minister Palaniappan Chidambaram’s efforts to rein in the budget deficit.

India got bids worth 446.1 billion rupees on the first day of the spectrum sale that started on Feb. 3, according to official statements. The total value of the spectrum being offered is at least 490 billion rupees, according to the government notice inviting applications.

The April-December budget deficit was 95.2 percent of the target for the year ending March 31, official data showed Jan. 31. The government aims to rein in the shortfall to within 5.42 trillion rupees, or 4.8 percent of gross domestic product, this fiscal year, according to official estimates.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell one basis point to 8.65 percent, data compiled by Bloomberg show.

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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