India’s 10-Year Bonds Advance as Foreign Debt Limits Eased

India’s 10-year government bonds rose, with the yield dropping to the lowest in more than a month, on optimism the nation’s move to revise foreign debt-purchase caps will attract more investment.

The limit on the amount of government bonds that overseas investors can buy has been raised by $5 billion to $25 billion, the Reserve Bank of India said yesterday. The move is a catalyst for Indian bonds and the rupee in a “yield-hungry” world, according to BNP Paribas SA. Bonds gained also as a pickup in rains eased concern food prices will accelerate.

The yield on the 8.83 percent sovereign notes due November 2023 fell one basis point, or 0.01 percentage point, to 8.65 percent in Mumbai, according to the RBI’s trading system. That’s the lowest level since June 17.

The RBI also said there will now be a minimum three-year maturity period for the foreign investors. It lowered the ceiling meant only for long-term investors such as sovereign wealth funds to $5 billion from $10 billion.

The changes are an “effort to move demand up in the maturity basket and follows an earlier decision to curb foreign institutional investors’ purchases into treasury bills,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, wrote in a research note today. “Hopes remain high that the catch-up showers in crucial July and September might rein in pre-emptive rise in fruit and vegetable prices in coming months.”

The shortfall in India’s June-September monsoon, which accounts for more than 70 percent of the annual rainfall, was 25 percent of the 50-year average, the weather department said yesterday. That compares with 43 percent on July 11.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, was unchanged at 8.41 percent, data compiled by Bloomberg show.

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