Bonds gained, pushing yields to the lowest in a month, after the central bank refrained from selling longer-maturity debt to drain surplus cash from the banking system.
Ten-year notes rose for a third day as the central bank said last week it will sell only treasury bills under the so-called stabilization bond plan. Bond traders expected the central bank to issue debt to prevent excess funds in the system from stoking inflation.
?Money in the system, which would have otherwise got drained, will be available for optimum use,” said M.A. Sardesai, head of treasury at state-owned Bank of Maharashtra Ltd in Mumbai. “The undertone will remain positive for a much longer period and help bond yields decline consistently.”
The yield on the benchmark 7.49% note due April 2017 fell 5 basis points, or 0.05 percentage point, to 7.84% as of in Mumbai, according to the central bank’s trading system. That’s the lowest since August 7. The price rose 0.32, or 32 paise per Rs 100 face value, to 97.65.
The Reserve Bank of India in August increased the amount of stabilisation debt it may sell in the fiscal year that started April 1 by 36% to $1.5 billion
The wholesale price index was 3.79 percent in the week to Aug. 25, compared with 3.94% the previous week, the government said on September 7. Faster inflation reduces the value of returns on fixed-income securities.
Bonds were also supported by speculation central banks worldwide will start cutting or stop raising interest rates to boost economic growth.
The US, the world’s largest economy, shed jobs in August for the first time in four years, leading traders to raise their expectations for a cut in borrowings costs by the Federal Reserve at its meeting September 18. Rupee rose to its strongest in almost a month on speculation an initial share sale by the nation’s biggest power transmission company will attract overseas investors. The currency gained for a fourth day as New Delhi-based Power Grid Corp received applications for all of the shares it offered in a sale starting today. The state-run company aims to raise as much as Rs 298 crore by selling 573.9 million shares. Global funds bought 57% more in shares in the first four days of last week than they did in the whole of the previous week.