Yields climbed earlier this week amid concern that federal and central bank bond sales will drain funds from the financial system, leaving lenders with less money to buy the securities. Ten-year bond yields may drop in a month to levels unseen since July, said S Srikumar, chief of fixed-income at state-owned Corporation Bank Ltd in Mumbai.
There is scope for yields to decline further, Mumbai- based Srikumar said. The levels looked attractive to make some investments given the fact that there appear to be no real risks to bonds in the near term.
The yield on the 7.99% bond due July 2017 fell 2 basis points, or 0.02 percentage point, to 7.89% in Mumbai, according to the central bank's trading system. Ten-year yields may drop to 7.8% in a month, Srikumar said.
Rupee rose to the highest since April 1998 after finance minister PChidambaram suggested there was only so much the government can do to curb gains in the currency.
The rupee's 11.6% rally this year to a nine-year high is threatening to hurt exports from Asia's fourth-biggest economy. We can do nothing directly, Chidambaram said in an interview in Washington DC A surge in capital from overseas prompted the central bank to ease rules on fund outflows to help stem the currency's appreciation.
These statements will make the market think there isn't going to be strong enough intervention by the authorities, and will fuel further rupee buying,'' said Paresh Nayar, chief of bonds and currency trading at Mumbai-based Development Credit Bank Ltd in Mumbai. They have to do the direct intervention if they are really serious.
The rupee climbed as much as 0.3% to 39.62 against the dollar, the highest intraday level since April 17, 1998, according to data compiled by Bloomberg. The currency, the best performer this year among 17 of Asias most active, was at 39.65 as of 10 a.m. The Reserve Bank of India said that local companies can now repay overseas loans of as much as $500 million before maturity, compared with an earlier limit of $400 million. Indian firms can also invest as much as four times their net worth in assets abroad.