Indian Bonds Gain as Year’s Borrowing Nears End; Rupee Gains

India’s 10-year bonds rose, pushing the yield to a two-week low, as the government’s borrowing program draws to a close and potentially boosts demand for existing debt.

The finance ministry will sell a total of 100 billion rupees ($1.6 billion) of notes maturing in 2020, 2023 and 2032 on Feb. 7 at the final auction for the year through March. Global funds have reduced holdings of rupee-denominated debt by $1.2 billion since Jan. 21, paring inflows for this year to $2 billion, as investors anticipate further cuts in U.S. stimulus.

“With government borrowing for the current fiscal year approaching its end, the domestic demand-supply dynamics are supportive of government securities,” said Nagaraj Kulkarni, a strategist at Standard Chartered Plc in Singapore. “However, the ongoing risk-off sentiment in global markets may counterbalance domestic positives.”

The yield on the 8.83 percent bonds maturing in November 2023 fell six basis points, or 0.06 percentage point, to 8.68 percent in Mumbai, according to the central bank’s trading system. That’s the lowest level since Jan. 23.

The notes also advanced as a government statement showed India got bids worth 446.1 billion rupees on the first day of a wireless spectrum auction yesterday, funds that will help cut the budget deficit. Standard Chartered has a neutral outlook on Indian government bonds and expects the 10-year yield to stay between 8.60 percent and 8.90 percent, Kulkarni said.

The rupee gained 0.1 percent to 62.5350 per dollar, according to prices from local banks compiled by Bloomberg. The currency has lost 1.2 percent this year as investors trimmed holdings of emerging-market assets amid the Federal Reserve’s tapering of stimulus.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, declined 69 basis points to 9.99 percent.

Three-month offshore non-deliverable forwards rose 0.2 percent to 63.92 per dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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