Rajan Leaving on a Bond High With Best Rally Since Start of 2015

Updated on
  • Ten-year yield slides in August for a third straight month
  • RBI’s debt purchases have helped boost notes: FirstRand

Raghuram Rajan.

Photographer: Simon Dawson/Bloomberg

India’s 10-year bonds completed their biggest three-month rally since early 2015 as investors prepare for a change in leadership at the nation’s central bank.

The Reserve Bank of India’s cash infusions and a global yield hunt are spurring gains in rupee sovereign debt, which handed investors a 1.5 percent return this month, following 2.9 percent in July that was the most in Bloomberg data going back to 2010. Urjit Patel, a deputy governor at the RBI, is set to take charge as Governor Raghuram Rajan’s term ends on Sept. 4, with investors counting on Patel to continue his predecessor’s inflation-fighting policies.

“A surge in global liquidity, expectations of more bond purchases by the central bank and issuance of the new 10-year debt below 7 percent have all contributed to the rally this month,” said Harish Agarwal, a Mumbai-based fixed-income trader at FirstRand Ltd. “Rajan’s policies have boosted investor confidence in India in a big way.”

For a story on India’s new 10-year bond to be issued Friday, click here.

The yield on the current 10-year notes maturing in January 2026 slipped five basis points this month to 7.11 percent at the close in Mumbai, prices from the central bank’s trading system show. That took its drop from May 31 to 36 basis points, the biggest three-month slide for benchmark 10-year debt since January 2015. The yield was little changed on Wednesday.

For a story on what bond investors expect from the new RBI chief, click here.

Asia’s third-largest economy probably expanded 7.6 percent in the second quarter, according to the median estimate in a Bloomberg survey before official data due later in the day.

India’s rupee rose 0.1 percent on Wednesday and for the month to 66.9625 per dollar, according to prices from local banks compiled by Bloomberg. The currency has weakened 1.2 percent this year in Asia’s worst performance after the Chinese yuan.