India’s bonds decline as stock slide may spur capital outflow

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Aug 16: India’s 10-year bonds fell, pushing yields to a six-week high, on concern a slide in Asian stocks will spur investors to withdraw money from the region.

The securities declined the most in a week as traders returned from Wednesday holiday to see the benchmark share index slump 3.6%. Bonds also dropped on speculation government curbs on companies’ overseas borrowing will further serve to reduce the funds available for banks to invest in debt.

“We are witnessing a flight to safety across global financial markets and that could lead to an outflow of money from our part of the world,” said Manoj Rane, treasurer at the Mumbai unit of BNP Paribas SA. “There will be a big sell off in stocks today, which will have negative implications for liquidity in the banking system.”

The yield on the benchmark 7.49% note due April 2017 rose 4 basis points to 8.02% in Mumbai, according to the central bank’s trading system, the highest since July 4. The price fell 0.26, or 26 paise per Rs 100 face value, to 96.44. A basis point is 0.01 percentage point.

The Bombay Stock Exchange's Sensitive Index, or Sensex, fell to the lowest in seven weeks as investors pared risk because of a deepening global credit squeeze. Global funds sold an average $78.3 million more a day of Indian stocks than they bought this month, after making average purchases of $205.9 million a day in July, stock exchange data show.

South Korea’s benchmark Kospi index fell as much as 7.5%, while the Nikkei 225 Stock Average, Hang Seng and Singapore's Straits Times index all dropped more than 3%. The Australian and New Zealand dollars fell after Australia's Rams Home Loans Group Ltd. said it has been unable to refinance the equivalent of $5 billion of short-term US loans.

Bonds also fell on concern debt sales by the central bank and a decline in overseas borrowing by companies will cut surplus cash in the banking system.