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India One-Year Swaps Rise as Rupee Slide Fuels Inflation Concern

India’s one-year interest-rate swaps advanced for a second day on concern a slide in the nation’s currency will stoke inflation.

The rupee fell for a third day, weakening beyond 61 per dollar for the first time since March 21 today and threatening to push up costs in a nation that imports about 80 percent of its oil. Foreigners sold a net $1.5 billion of rupee debt this month through April 22 after pumping in a record $6.2 billion in the January-March quarter.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose two basis points, or 0.02 percentage point, to 8.62 percent in Mumbai, according to data compiled by Bloomberg. The yield on the 8.83 percent government bonds due November 2023 was at 8.851 percent, compared with 8.854 percent yesterday, prices from the central bank’s trading system show. The markets in Mumbai are shut tomorrow for voting in the ongoing parliamentary elections.

“The rupee’s decline should have an impact on the bond market,” said Harihar Krishnamoorthy, treasurer at the Indian unit of FirstRand Ltd. in Mumbai. “The liking for local bonds from foreigners has fallen.”

India’s government will auction 160 billion rupees ($2.6 billion) of debt on April 25. Some 62 percent of the nation’s sovereign debt-sale target of 5.97 trillion rupees for the year ending March 2015 may be met in the April-September period, according to an official government estimate.

Concern increased supply will curb demand for existing bonds pushed up 10-year yields to 9.1 percent on April 7, the highest since November. The rate reached this month’s low of 8.85 percent on April 17 after India sold 200 billion rupees of bonds at cut-off yields that were below investors’ estimates.

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