Bonds gain on RBI intervention hopes

Bonds gain on RBI intervention hopes

Mumbai: Indian bonds rose on speculation policy makers will step up measures to boost funds in the banking system as surplus cash dwindled.

The 10-year yield fell from near the highest in a week as lenders and securities companies borrowed from the Reserve Bank of India (RBI) for a second day to meet their daily cash needs.

The yield on the 8.24% note maturing in April 2018 declined 4 basis points to 7.68% at close in Mumbai, according to the central bank’s trading system. The price rose 0.25, or 25 paise per Rs100 face amount, to Rs103.70. A basis point is one-hundredth of a percentage point.

The central bank lent a net Rs8,570 crore to lenders and securities companies in exchange for securities as collateral on Tuesday after Rs12,440 crore on Monday, daily auction data show.

RBI cut its benchmark repurchase rate by a total of 1.5 percentage points in two stages starting 20 October to 7.5% from a seven-year high of 9%. It also lowered the amount lenders must set aside as reserves to cover deposits by 3.5 percentage points in a month, freeing up as much as Rs1.4 trillion in cash to ease lending.

Debt sale

Bonds fell earlier on speculation some investors sold to make room for new securities that will be offered at an auction on 14 November. The finance ministry on Monday said it will sell Rs6,000 crore of 7.56% notes due in 2014 and Rs4,000 crore of 7.95% bonds maturing in 2032.

Yields touched the highest in almost a week after the central bank on Monday allowed lenders to use so-called oil bonds as collateral to borrow funds from the monetary authority.

The move will discourage investors from buying securities in excess of their mandated needs, according to Mahesh Pai, a fixed-income trader at state-owned Canara Bank.

“The measure will equip banks with a new set of bonds they can use to meet their fund needs," Mumbai-based Pai said, adding: “Fresh investments will be avoided in the immediate future which will cause yields to firm up a bit."

The government on Monday said it issued Rs22,000 crore of bonds to three state-owned refiners to help narrow their losses from selling fuel below cost.

The central bank said lenders can use these securities to borrow funds under its daily liquidity adjustment facility.

The cost of five-year interest rate swaps, or derivative contracts used to guard against rate fluctuations, also fell on Tuesday.

The rate, a fixed payment made to receive floating rates, declined to 6.61% from 6.71% on Monday.