Mumbai: India’s 10-year bonds gained on speculation banks will increase purchases of the securities to cover rising deposits.
Yields fell the most in three days after a 2 April Reserve Bank of India (RBI) report showed that the nation’s lenders added Rs14,690 crore to their holdings of federal debt in the two weeks ended 12 March. Under India’s banking law, lenders must invest at least 25% of their deposits in government bonds or other low-risk notes approved by the central bank.
“Ten-year yields seem to run into some resistance around 7.85% and may remain below that level in the coming days,” said Anoop Verma, a fixed-income trader at Development Credit Bank Ltd in Mumbai. “There’s some demand emerging for bonds, mostly from banks.”
The yield on the 6.35% note due January 2020 dropped 5 basis points to 7.80% from 31 March at close on the Bombay Stock Exchange, according to RBI’s trading system. The price rose 0.30, or Re30 per 100 rupee face amount, to 90.20.
Gains in bank deposits in India quickened to 18.1% in the 12 months ended 12 March, the fastest pace so far this year, a RBI report showed on 2 April.
Bonds fell earlier on speculation that some investors will pare holdings to raise funds for purchases at a government debt auction this week.
The government will sell Rs12,000 crore of bonds maturing in 2012, 2020 and 2027 on 9 April, the finance ministry said last week. India plans to borrow Rs2.87 trillion in the first half of the fiscal year that started on 1 April.
“Investors are realigning their positions to accommodate the debt supply that is going to come in,” said Devendra Das, a fixed-income trader at Development Credit Bank in Mumbai.
The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased. The rate, a fixed payment made to receive floating rates, rose to 6.90% from 6.88% at the previous close.