India’s 10-Year Bonds Gain as Oil’s Drop Slows Inflation

Indian sovereign bonds fell, snapping a five-day gaining streak, on speculation the central bank may accelerate efforts to mop up extra cash from the financial system.

The Reserve Bank of India Tuesday announced reverse repos to drain 150 billion rupees overnight ($2.4 billion) and 300 billion rupees for 9-days. Net average banking system liquidity was in a surplus of about 170 billion rupees as of July 4, against a deficit of 574.8 billion rupees for the week ending June 27, according to estimates by Kotak Mahindra Bank Ltd.

“Sentiment is hurt by speculation that the central bank may try to mop up surplus liquidity,” said Debendra Dash, a Mumbai-based trader at DCB Bank Ltd. “However, the market isn’t prepared for any additional supply of bonds other than those scheduled.”

The yield on the securities due May 2025 rose three basis points to 7.78 percent in Mumbai, prices from the central bank’s trading system show. The rate had dropped to as low as 7.72 percent early in the session Tuesday.

The rupee fell 0.1 percent to 63.46 a dollar, snapping five days of gains, according to prices from local banks compiled by Bloomberg. It climbed 0.7 percent in the last five days.

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