India's Debt Purchases Drive 10-Year Yield to Three-Week Low

  • RBI to buy as much as 100 billion rupees of notes on May 10
  • Rajan wants to lower borrowing costs to support economy: PNB

Indian bonds rose, pushing the 10-year yield to a three-week low, on optimism the central bank’s debt purchases will boost cash supply.

The Reserve Bank of India will buy as much as 100 billion rupees ($1.5 billion) of notes on May 10, according to a statement on Friday. The monetary authority resumed open-market operations in December after a gap of almost two years to tackle a funding shortage, despite five interest-rate cuts since early 2015.

“The primary driver of yields today is the RBI’s announcement of bond purchases,” said Vijay Sharma, executive vice-president for fixed income at PNB Gilts Ltd. in New Delhi. The RBI’s “aim is to manage the yields in such a way that overall borrowing costs come down to support the economy,” he said.

The yield on the January 2026 debt fell one basis point to 7.43 percent in Mumbai, according to prices from the RBI’s trading system. The yield earlier dropped to as low as 7.42 percent in the intraday trading, the lowest since April 18. The 10-year yield dropped three basis points last month after a 16 basis-point decline in March.

The central bank has added about 1.01 trillion rupees to the banking system by way of open-market debt purchases since December and 300 billion rupees in April alone.

The rupee was little changed at 66.5825 a dollar, according to prices from local banks compiled by Bloomberg. The currency has dropped 0.4 percent so far this month, the least in Asia after Hong Kong’s dollar.

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