Bond rates rise on RBI offer to buy back Rs6,000 crore debt

Bond rates rise on RBI offer to buy back Rs6,000 crore debt

Mumbai: India’s 10-year bonds gained on Wednesday after the central bank said it will offer to buy back existing debt at an auction on Thursday.

The Reserve Bank of India on Tuesday said it will purchase as much as Rs6,000 crore of securities as it helps the government to raise a record Rs4.51 trillion this fiscal year ending March. The government may borrow between Rs8,000 crore and Rs10,000 crore, ET Now television channel reported, citing finance minister Pranab Mukherjee.

The central bank’s move is supportive of bonds and should lead to a further drop in yields, said Devendra Das, a fixed-income trader at Development Credit Bank Ltd in Mumbai. It widens the scope of managing portfolios.

The yield on the most traded 6.90% note due in July 2019 dropped 4 basis points (bps) to 7.09% at close, according to the central bank’s trading system. The price climbed Re0.25 per-Rs100 face amount, to 98.66. A basis point is one-hundredth of a percentage point.

The central bank has offered to buy 7.56% bonds due in 2014, 6.05% notes due in 2019, 7.94% bonds due in 2021 and 7.5% debt maturing in 2034, according to a statement on Tuesday. RBI bought Rs4,525 crore worth of outstanding debt in open market operations on 17 September compared with Rs4,300 crore on 10 September.

The government will complete its borrowing programme for the fiscal year by the end of January, ET Now said, citing Mukherjee.

The cost of five-year interest rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, slipped.

The rate, a fixed payment made to receive floating rates, decreased to 6.61% from 6.64% on Tuesday.

Sam Nagarajan contributed to this story.