Indian 10-year bonds rally as auction yields set below estimates - Livemint

India met its target to sell Rs.20,000 crore of notes due between 2022 and 2043 Thursday at maximum yields from 9.16% to 9.31%. Photo: Mint

Mumbai: India's 10-year sovereign bonds rallied the most in four months, reversing an earlier loss, after the government auctioned debt at lower yields than investors estimated.

India met its target to sell Rs.20,000 crore of notes due between 2022 and 2043 Thursday at maximum yields from 9.16% to 9.31%, according to a central bank statement. That compared with a range of 9.20% to 9.37% forecast in a Bloomberg survey of traders.

Thursday's sale was India's biggest weekly offering ever, according to DCB Bank Ltd. Bonds gained also as the central bank injected additional cash into the financial system through a 15-day term repurchase auction.

The yield on the 8.83% notes due November 2023 slid 12 basis points, or 0.12 percentage point, to 8.85% in Mumbai, the biggest drop since 18 December, prices from the central bank's trading system show. The rate, which climbed as high as 9% earlier on Thursday, dropped nine basis points this week.

"The auction results pleasantly surprised the markets as the expectations were for higher cut-off rates," said Vaidyanathan Iyer, Mumbai-based executive director at A.K. Capital Services Ltd. "This should smoothen out yield expectations for the near future and lend support to bonds."

Some 62% of the government's debt sales target of Rs.5.97 trillion for the year ending March 2015 may be met in the April-September period, economic affairs secretary Arvind Mayaram said 28 March. Concern that increased supply will curb demand for existing bonds had pushed 10-year yields to a November high of 9.1% on 7 April.

Inflation quickens

India's consumer-price inflation quickened to 8.31% in March from a revised 8.03% in February, data released this week showed. Wholesale-price gains accelerated to 5.7% from 4.68%. The Reserve Bank of India has raised interest rates three times since September to curb inflation. It left them unchanged at the latest review on 1 April.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined two basis points to 8.60%, according to data compiled by Bloomberg. They were unchanged for the week.

The markets are shut Friday for a public holiday. Bloomberg

Manish Modi in New Delhi contributed to this story.

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