Bonds gain as RBI refrains from draining surplus cash

Bonds gain as RBI refrains from draining surplus cash

Mumbai: India’s bonds gained, pushing yields to the lowest in a month, after the Reserve Bank of India (RBI) refrained from selling longer-maturity debt to drain surplus cash from the banking system.

Ten-year notes rose for the third day as RBI said last week it will sell only treasury bills under the so-called stabilization bond plan.

Bond traders expected the central bank to issue debt to prevent excess funds in the system from stoking inflation.

“Money in the system, which would have otherwise got drained, will be available for optimum use," said M.A. Sardesai, head of treasury at state-owned Bank of Maharashtra Ltd in Mumbai. “The undertone will remain positive for a much longer period and help bond yields decline consistently," he added.

The yield on the benchmark 7.49% note due April 2017 fell 3 basis points, or 0.03 percentage point, to 7.86% at the close in Mumbai. That’s the lowest since 7 August. The price rose 0.18, or 18 paise per Rs100 face value, to 97.51.

The Reserve Bank in August increased the amount of stabilization debt it may sell in the fiscal year that started on 1 April by 36% to Rs1.5 trillion.