India 10-Year Bonds Complete Weekly Gain as Cash Supply Improves

India’s 10-year government bonds completed a weekly advance on speculation an increase in cash supply will buoy demand for sovereign debt.

The Reserve Bank of India drained an average of 129.4 billion rupees ($2.1 billion) each day this week through yesterday via its money-market auctions, compared with an average daily net injection of 87.3 billion rupees this quarter. That indicates an increase in funding availability, which is probably because the government has stepped up spending, according to FirstRand Ltd. The government sold 120 billion rupees of bonds as planned at a weekly auction today.

The yield on the 8.4 percent notes due July 2024 dropped four basis points, or 0.04 percentage point, this week to 8.52 percent in Mumbai, prices from the RBI’s trading system show.. The rate was steady today.

“Bonds have been relatively quiet this week even as the undercurrent is positive due to an improved liquidity scenario and continuous foreign inflows,” said Harish Agarwal, a fixed-income trader at FirstRand in Mumbai. “Yields have been pretty stable as investors are waiting for the next trigger.”

Foreign funds bought a net $476 million of rupee corporate and government securities in the first three days of this month after pumping in $2.8 billion in August, exchange data show. That was the fourth straight month of inflows and has helped boost foreign holdings of Indian debt to a record $42.5 billion.

Standard Chartered Plc favors local-currency sovereign notes as India’s government accelerates economic reforms amid optimism that inflation will ease, Chief Investment Strategist Steve Brice in Singapore said last week. Money managers at Amundi Asset Management and Union Investment Privatfonds also said last week that they consider Indian bonds attractive.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose one basis point this week to 8.47 percent, data compiled by Bloomberg show.

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