Indian Bonds Advance as Buyback Seen Boosting Demand for Debt

  • Government to repurchase up to 150 billion rupees of notes
  • Move will help improve banking system liquidity: PNB Gilts

Indian bonds due 2026 jumped the most since they were issued in early January on bets the government’s buyback of sovereign securities will boost cash supply in the financial system and spur demand for existing debt.

The administration will repurchase as much as 150 billion rupees ($2.2 billion) of notes on Feb. 22 to prematurely redeem them by using surplus cash, according to a central bank statement after the close of markets on Wednesday. The government bought back 166.5 billion rupees of bonds on Feb. 4. The moves coincide with the Reserve Bank of India’s efforts to ease a cash crunch that’s driven short-term borrowing costs higher.

The yield on notes due January 2026 halted a four-day increase, falling five basis points to 7.74 percent in Mumbai, prices from the RBI’s trading system show. It climbed seven basis points in the last four days. Bonds advanced as global holdings of local-currency debt increased 4.82 billion rupees over the last two days after falling for five consecutive days.

“The liquidity infusion is helping market sentiment,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. “A risk-on sentiment seen for emerging-market assets today is also positive.”

The RBI has increased cash injections through regular term-repurchase auctions and resumed open-market purchases of bonds in December after a gap of almost two years as it tackles a funds shortage in the banking system. The monetary authority has bought 300 billion rupees of notes via three auctions, the latest being on Feb. 8. The government had a surplus cash balance of 1.1 trillion rupees with the central bank as of Wednesday.

The rupee ended little changed at 68.47 a dollar, according to prices from local banks compiled by Bloomberg. It weakened 0.3 percent from Feb. 12 and fell as low as 68.675 on Wednesday, near a record 68.845 seen in August 2013. Bond and currency markets will be shut Friday for a local holiday.

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