Indian 10-Year Bonds Advance on Cash Injections as Rupee Rallies

India’s 10-year government bonds climbed, pushing the yield to a seven-week low, on speculation demand for the securities was buoyed by central bank cash injections and a stronger rupee.

The Reserve Bank of India added 750 billion rupees ($12.5 billion) to the financial system via term repurchase agreements on May 2 after using the contracts to inject 1.41 trillion rupees in April. The rupee rallied past the 60 per dollar level today for the first time in almost a month before ending 0.1 percent lower. A stronger currency cuts costs for India, which imports about 80 percent of its oil, helping curb inflation.

The yield on the 8.83 percent bonds due November 2023 fell seven basis points, or 0.07 percentage point, to 8.74 percent in Mumbai, prices from the central bank’s trading system show. That’s the lowest level since March 12 and comes after the yield dropped eight basis points last week.

“Markets are drawing good support from the central bank’s liquidity measures and the rupee’s strength,” said Killol Pandya, a Mumbai-based senior fixed-income fund manager at LIC Nomura Mutual Fund Asset Management Co. There are no negative triggers at the moment and investors are waiting for the election result, which will be a watershed event, he said.

Voting in national polls began April 7 and will end May 12, with results due May 16. India’s three-month interbank rate dropped the most in six months in April as RBI Governor Raghuram Rajan added cash to the financial system for longer periods while paring overnight offerings.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell three basis points to 8.57 percent, according to data compiled by Bloomberg. They dropped as much last week.

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