Indian Bonds Complete Biggest Weekly Advance in a Month

  • Primary dealers forced to buy debt at government auction
  • PNB Gilts sees additional 300-400 billion rupees of OMOs

Indian sovereign bonds completed their biggest weekly advance since mid-December on speculation the central bank will inject more cash via open-market operations.

The Reserve Bank of India bought 100 billion rupees ($1.5 billion) of government notes on Wednesday, the second purchase in as many months, to boost liquidity. Overseas investors sold a net 8.41 billion rupees of local-currency debt in the last four days, data from National Securities Depository Ltd. show, while there was $802.9 million of outflows from the stock market.

“The biggest factor helping bonds is the RBI’s open-market operations,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. “The market is expecting more tranches of OMOs in the coming weeks.”

The yield on the notes due May 2025 fell three basis points this week, the biggest drop since period ended Dec. 18,  to 7.78 percent, according to the RBI’s trading system. It rose three points on Friday after primary dealers had to step in to buy unsold government bonds amid a weak demand for long-tenor papers.

No Target

The government raised 140 billion rupees ($2.1 billion) selling securities due 2023, 2026, 2034 and 2055 on Friday, with underwriters purchasing 8.04 billion rupees of the 2034 notes, according to an RBI statement. It is the third time in two months that underwriters had to rescue a debt sale.

“Most investors are concentrated around shorter-tenor notes,” said Badrish Kulhalli, a fixed-income fund manager at HDFC Standard Life Insurance Co. in Mumbai. “Supply in the longer-end is creating a mismatch.”

The rupee completed a third week of decline as investors fretted over China’s economic slowdown and a crash in oil prices. The currency rebounded 0.6 percent to 67.63 a dollar on Friday, paring most of its loss since Jan. 15. It has fallen 2.2 percent this month.

“We don’t have a target in mind” for the rupee, RBI Governor Raghuram Rajan said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland on Thursday. “What we do want to ensure is that we don’t get excess volatility.”

Before it's here, it's on the Bloomberg Terminal.