India Bonds Complete Best Week Since January on Inflow Optimism

India’s 10-year government bonds completed their best week since January on optimism demand for debt will pick up as the nation’s current-account deficit shrinks and geopolitical tensions ease.

The gap in the broadest measure of trade narrowed in the October-December period to $4.2 billion, the least in four years, compared with $5.2 billion in the previous three months, the Reserve Bank of India said in a statement March 5. The improvement helped the rupee post the biggest gain since Nov. 18 yesterday. Russian President Vladimir Putin said March 4 he sees no immediate need to invade Ukraine, spurring gains in riskier assets.

The yield on the 8.83 percent sovereign notes due November 2023 fell five basis points, or 0.05 percentage point, this week to 8.81 percent in Mumbai, the most since the period ended Jan. 17, according to the central bank’s trading system. It rose two basis point today.

“There has been a revival in sentiment based on recent local and global developments,” said Arvind Chari, head of fixed income at Quantum Advisors Pvt. in Mumbai. “Still, gains are limited, given debt supply will again pick up next month.”

India’s government may borrow as much as 60 percent of its 5.97-trillion rupee ($98 billion) estimate for the fiscal year ending March 2015 in the first six months, two Finance Ministry officials with direct knowledge of the matter said this week, asking not to be identified as the information isn’t public.

Overseas funds have added $5.6 billion to their holdings of rupee-denominated notes this year, after paring investments by a record $8 billion in 2013. Inflation-adjusted bond yields in India have climbed to the highest since 2009.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, were little changed from Feb. 28 at 8.69 percent, data compiled by Bloomberg show.

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