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India’s Rupee Forwards Gain After Yield Advantage Widens

India’s rupee forwards rose for a second day as speculation an increase in U.S. borrowing costs may be pushed back boosted India’s yield advantage over developed-nation debt.

Treasury yields slumped on April 4 as an American jobs report that trailed estimates reduced bets the Federal Reserve will raise interest rates anytime soon. Indian 10-year sovereign bonds yield 9.10 percent, 638 basis points more than similar-maturity U.S. notes, the widest margin since November. Global funds have pumped $6.2 billion into Indian debt so far this year, exchange data show.

“The rupee is a darling of investors at the moment because of its high carry,” said Paresh Nayar, the head of currency and money markets at FirstRand Ltd. in Mumbai.

Three-month onshore forwards rose 0.1 percent to 61.42 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 61.32 versus 61 on April 4. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

The rupee ended at 60.1250 per dollar in the spot market compared with 60.0850 on April 4, data compiled by Bloomberg show. It swung between gains of as much as 0.5 percent and losses amounting to 0.3 percent as local stocks retreated, according to Andhra Bank. S&P BSE Sensex of local stocks declined 0.1 percent, reversing the 0.6 percent gain earlier.

“The decline in the equity market triggered the weakness in the rupee,” said Vikas Babu, a Mumbai-based trader at Andhra Bank.

Yellen’s Comments

Financial markets in Mumbai will be closed tomorrow for a local holiday.

India’s shrinking current-account deficit is also boosting confidence in the local currency, according to FirstRand. The shortfall in the broadest measure of trade narrowed to $4.2 billion in the three months through December, the least in data compiled by Bloomberg going back to 2010.

The U.S. reported last week that nonfarm payrolls increased 192,000 in March, less than the 200,000 median estimate in a Bloomberg survey.

Federal Reserve Chair Janet Yellen said March 31 the U.S. economy will need stimulus for “some time” and the central bank hasn’t done enough to combat unemployment. That followed her March 19 comments, when she said the Fed’s bond-buying program could end later this year and benchmark interest rates may be raised about six months after that.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell 20 basis points, or 0.20 percentage point, to 8.9975 percent.

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