India’s bond yields near one-week low, RBI to purchase debt

India’s 10-year bond yields were near the lowest level in more than a week on optimism a central bank plan to buy government debt will boost demand.

The Reserve Bank of India said yesterday it will purchase 120 billion rupees ($2.3bn) of notes due in 2017, 2021, 2022 and 2027 in an open-market auction on January 6. It bought 412bn rupees of securities since November 24, official data show, to ease a cash crunch at banks and help a record sovereign borrowing program succeed. India boosted its annual debt-sales target by 8.5 per cent last week to 5.1 trillion rupees.

“The RBI’s open-market purchases are keeping yields down this week,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank in Mumbai. “This is helping ease the negative sentiment among investors due to the huge government borrowing program.”

The yield on the 8.79 per cent notes due November 2021 was 8.37 per cent in Mumbai, according to the central bank’s trading system. It fell to 8.36 per cent yesterday, the lowest level since December 22.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose two basis points to 7.70 per cent, according to data compiled by Bloomberg.