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India 2019 bonds gain on improving cash supply, policy optimism

LiveMint logoLiveMint 27-05-2014 Shikhar Balwani

Mumbai: Indian bonds maturing in 2019 rose, with the yield near a four-month low, on optimism that improving cash supply in the banking system will spur demand for debt.

The overnight interbank borrowing rate has dropped to 7.95%, below the Reserve Bank of India’s (RBI’s) key repurchase rate of 8%, and from 9% at the end of April. Lenders’ overnight borrowings from the RBI have averaged `8,900 crore this month, compared with `12,300 crore in April, official data show. Curbing inflation and restoring investor confidence are among priorities, Arun Jaitley, the newly appointed finance minister, told reporters in New Delhi on Tuesday.

“Liquidity has improved significantly, plus there is optimism the new government will pursue policies to control inflation and improve India’s fiscal situation,” said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd in Mumbai.

The yield on the 7.28% bonds due June 2019 fell three basis points, or 0.03 percentage point, to 8.58% in Mumbai, prices from RBI’s trading system show. It was at 8.57% on 23 May, the lowest since 21 January. The yield on the 8.83% 10-year notes due November 2023 was at 8.673% on Tuesday, little changed from yesterday’s 8.675%.

Narendra Modi took oath as India’s prime minister in New Delhi on Monday after his Bharatiya Janata Party won 282 of 543 parliamentary seats in the national election, more than the 272 needed to form a government on its own.

India’s consumer-price index rose 8.59% in April from a year earlier, the fastest pace among Asia’s top 10 economies. The nation will sell `16,000 crore of debt on 30 May, including `7,000 crore of a new 14-year bond, according to a statement on the finance ministry’s website on Monday.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell one basis point to 8.40%, data compiled by Bloomberg show. BLOOMBERG

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