India 10-Year Bonds Gain as Yields Attract Buyers, Rupee Steady

India’s 10-year bonds rose for the first time in four days as 14-month high yields attracted buyers and the rupee stabilized after the central bank’s steps.

The Reserve Bank of India capped the amount lenders can borrow in daily repurchase auctions at 0.5 percent of deposits, according to a July 23 statement. It raised the daily balance requirement for lenders’ cash-reserve ratios to 99 percent from 70 percent from July 27. The tightening measures came after the RBI raised two of its interest rates on July 15, while keeping the main repurchase rate unchanged at 7.25 percent, and moved to drain money through bond sales. The rupee has jumped 3.6 percent from a record low of 61.2125 a dollar on July 8.

“The currency’s stability helped the market sentiment and there was some amount of short-covering too,” Srinivasa Raghavan, Mumbai-based executive vice-president of treasury at Dhanlaxmi Bank Ltd., said by phone.

The yield on the 7.16 percent bonds due May 2023 slid 22 basis points, or 0.22 percentage point, to 8.20 percent in Mumbai, according to prices from the central bank’s trading system. The rate was at 8.42 yesterday, the highest for a 10-year benchmark bond since May 31, 2012. Today’s drop pared this month’s increase in the rate to 75 basis points.

A weaker currency makes imports costlier and threatens to spur gains in consumer prices, which have stayed close to 10 percent for more than a year. Primary dealers underwrote 79 percent of the 150 billion rupees worth of government bonds to be auctioned tomorrow, the RBI said in a statement today. India sold 51.95 billion rupees of cash-management bills at an auction today, compared with an offer of 60 billion rupees, the central bank said in a separate statement.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, slumped 17 basis points, or 0.17 percentage point, to 9.34 percent, data compiled by Bloomberg show. The rate touched 9.61 percent earlier in the day, the highest level since August 2008.

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