Mumbai: Government bonds gained for the third day on speculation that investors will buy fixed-income securities after the Sensex plunged the most in almost four years on Monday.
The benchmark bond yield fell to the lowest in a week after all the 30 stocks on the Bombay Stock Exchange sensitive index declined. That was probably because of concern the US will enter a recession, prompting investors to buy safer instruments, such as government debt, according to Rajesh Babu, a Mumbai-based trader with state-owned Andhra Bank. “The volatility will drive investors away from investments that involve more speculation,” he said. “Bonds may find deeper interest now and help yields decline.”
The yield on the 7.99% note due July 2017 fell to 7.54% at close, from 7.55% on 18 January, according to the Reserve Bank of India trading system. The price rose 4 paise per Rs100 face amount to Rs103.
Earlier on Monday, the bonds saw their biggest decline in more than two months on speculation that a higher overnight loan rate will deter investors from buying debt using borrowed funds.
Benchmark yields rose from near the lowest in a year as the government plans to sell Rs6,000 crore of debt this week under its so-called market stabilization plan to drain cash from the banking system.
“Overnight borrowings are costlier and the government is planning more debt sales that will drain money,” said Paresh Nayar, head of bonds and currency trading at Development Credit Bank Ltd in Mumbai.