India 10-Year Bonds Complete Worst Week Since 2009 on RBI Action

India’s 10-year bonds completed their biggest weekly drop since 2009 after the central bank raised two interest rates to steady the nation’s currency.

Primary dealers bought 24 percent of bonds at a government debt sale to raise 150 billion rupees, according to a statement by the Reserve Bank of India after trading closed. The RBI yesterday sold only 21 percent of its target in an open-market auction meant to drain cash from the banking system. It rejected all bids at a treasury-bill sale on July 17 after increasing the marginal standing facility and the bank rate to 10.25 percent from 8.25 percent two days earlier. The key repurchase rate was unchanged.

“It was a very challenging weak for the markets and it’s evident confidence has been shaken,” Srinivasa Raghavan, Mumbai-based executive vice president of treasury at Dhanalaxmi Bank Ltd., said by phone. “Rate hikes were unexpected.”

The yield on the 7.16 percent bonds due May 2023 slid five basis points, or 0.05 percentage point, to 7.94 percent in Mumbai today, according to the central bank’s trading system. The rate surged 41 basis points this week, the most for a benchmark 10-year government note since December 2009, data compiled by Bloomberg show.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose four basis points today to 8.65 percent, data compiled by Bloomberg show. The rate surged 110 basis points this week.

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