Mumbai: India’s seven-year bonds posted a third weekly loss on speculation government debt sales will reduce demand for existing securities.
Yields on the most-traded notes due 2016 touched a nine-month high as the Union government sold Rs12,000 crore ($2.5 billion) of securities on Friday. Additionally, eight Indian states plan to sell a total of Rs8,350 crore of 10-year securities on 8 September. Bonds also fell on concern a slower pace of decline in wholesale prices, indicating a rebound in the economy, will prompt the central bank to raise interest rates.
Supply is the biggest concern for investors as it is making portfolio management difficult with each successive debt sale, said Kamlesh Chand, a trader at IndusInd Bank Ltd in Mumbai.
The yield on the 7.02% note due August 2016 this week rose 10 basis points to 7.43% at close, according to the central bank’s trading system. The price fell 0.54, or 54 paise per Rs100 face amount, to 97.80. One basis point is one hundredth of a percentage point.
Wholesale prices fell the least in 12 weeks, suggesting that inflation may soon turn positive in Asia’s third largest economy.
In the derivatives market, the 10-year bond future maturing by 31 December was traded at 8.20%, while the contract due 31 March 31 was at 8.34%, according to the Web site of the National Stock Exchange of India Ltd. The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was little changed.