Indian Bonds Complete Biggest Weekly Gain in More Than a Month

India’s 10-year bonds capped their biggest weekly advance in more than a month on optimism a revision of caps on debt purchases by foreigners will boost inflows and a pickup in rains will restrain food prices.

India raised the limit on the amount of government bonds that overseas investors can buy by $5 billion to $25 billion this week. The move is a catalyst for local bonds and the rupee in a “yield-hungry” world, according to BNP Paribas SA. The nation simultaneously cut the quota meant only for long-term investors such as sovereign wealth funds to $5 billion from $10 billion, thus keeping the overall limit for foreign investment in sovereign notes unchanged at $30 billion.

“The raising of foreign limits, recent progress of the monsoons and the easing of inflation in June are all positive factors for the bond markets,” Sujoy Kumar Das, head of fixed income at Religare Invesco Asset Management Co. in Mumbai, said by phone. “It’s been a good week and we expect yields to remain soft, given India’s improving macroeconomic indicators.”

The yield on the 8.83 percent notes due November 2023 slid 10 basis points, or 0.10 percentage point, from July 18 to 8.67 percent in Mumbai, according to the central bank’s trading system. That’s the biggest weekly decline since the period ended June 6. The rate rose two basis points today.

The shortfall in the June-September monsoon, which accounts for more than 70 percent of India’s annual rainfall, was 24 percent of the 50-year average, the weather bureau said yesterday. That compares with a 43 percent deficit on July 11. The revival has eased concern that deficient rainfall will hurt farm output and boost food prices, which make up about half of India’s consumer-inflation basket.

India sold 140 billion rupees ($2.3 billion) of bonds at an auction today, including 70 billion rupees of new 10-year debt. The bonds due 2024 were set a coupon rate of 8.40 percent, according to a statement from the central bank.

Foreign funds were net buyers of $517.7 million of local company and government debt yesterday, their biggest single-day purchase since June 6, exchange data showed today.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose one basis point this week and today to 8.42 percent, data compiled by Bloomberg show.

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