Indian Bonds Gain as Yield Falls From 3-Week High on Inflows

India’s 10-year bonds rose, with the yield retreating from a three-week high, on optimism global funds will boost holdings of local debt after the elections handed a clear majority to the Bharatiya Janata Party.

The BJP, led by Narendra Modi, secured 282 seats, the biggest electoral victory for a single party since 1984. The party crossed the 272 figure needed for a majority, enabling it to pursue policies without being constrained by coalition politics. Overseas investors bought about a net $299 million of rupee-denominated bonds yesterday after pouring in $425 million in the five days through May 16, which was a third straight week of inflows, according to the latest exchange data.

“The election result is expected to boost capital flows,” said Vaidyanathan Iyer, Mumbai-based executive director at A.K. Capital Services Ltd. “The market is also consolidating a bit after the recent declines.”

The yield on the 8.83 percent notes due November 2023 dropped one basis point, or 0.01 percentage point, to 8.86 percent in Mumbai, prices from the central bank’s trading system show. It climbed 14 basis points in the past four days to the highest level since April 25.

Ten-year bonds slumped last year, with the yield jumping 78 basis points in the biggest annual advance since 2009, as global investors pulled an unprecedented $8 billion from the rupee-debt market on the prospect of a U.S. stimulus cut. They have plowed back $5.7 billion into local company and government securities so far in 2014, exchange data show.

The alliance headed by BJP, the main opposition party, is set to take power after Prime Minister Manmohan Singh’s Congress lost the national elections. Indian President Pranab Mukherjee appointed Modi as the nation’s prime minister and invited him to take the oath of office on May 26, presidential spokesman Venu Rajamony said in a statement today.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell two basis points to 8.49 percent, data compiled by Bloomberg show.

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