India 2022 Bond Yield Little Changed This Week as Cash Improves

The yield on Indian bonds due 2022 were little changed this week on optimism improved supply of cash in the banking system will spur demand for debt, offsetting concerns about a weaker rupee fuelling inflation.

Local lenders’ net daily borrowings from the central bank to meet fund shortages was below 100 billion rupees ($1.7 billion) in the past two days, after averaging 417 billion in the first three days of this week, official data show.

Cash in the banking system rose amid signs the government is stepping up expenditure to boost economic growth. India’s spending in the first two months of the fiscal year ending March 2014 was 13.1 percent of the total budgeted expenditure, compared with 12.8 percent a year earlier, official estimates showed last week.

“There’s ample cash in the system as the government has started spending,” said N.S. Venkatesh, the Mumbai-based head of treasury at state-run IDBI Bank Ltd.

The yield on the 8.15 percent notes due June 2022 was little changed from June 28 at 7.63 percent in Mumbai, according to the central bank’s trading system. The yield rose three basis points today as the Indian rupee weakened.

The overnight interbank borrowing rate was at 5.5 percent today, compared with 7 percent at the end of last week.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, jumped nine basis points today to 7.50 percent, data compiled by Bloomberg show.

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