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Govt bonds recover sharply on report RBI to consider debt purchases

There was no immediate comment on the report from the RBI, which holds its next policy review on February 6-7

Reuters  |  NEW DELHI 

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Indian rallied on Friday, recovering from losses that earlier sent benchmark 10-year yields up as much as 8 basis points, on a media report the might buy from the open market to support the country's weakening debt

NewsRise, a financial provider, cited an unnamed senior finance ministry official as saying the might purchase to support the borrowing programme for the next financial year and to support state-run lenders who are the market's biggest buyers.

The report sparked a sharp turnaround in a market that started the session by sliding for a second day on worries the would become more hawkish on inflation, after the 2018/19 budget presented on Thursday raised spending for agriculture and lifted minimum support prices for crops.

There was no immediate comment on the report from the RBI, which holds its next policy review on Feb. 6-7.

The 10-year benchmark bond yield fell to 7.54 percent as of 0901 GMT, after rising to a two-year high of 7.68 percent.

The Indian rupee also trimmed losses to trade at 63.98/99 to the dollar from the day's low of 64.20.

India's has slumped in recent months, with bond yields having risen as much as 117 points since the end of June due to concerns about rising inflation, tightening liquidity and worries about the government's


Traders said the report appeared to signal the government was moving towards supporting debt markets, after recent comments from Deputy Governor Viral Acharya warning about the potential losses being suffered by state-run banks in government debt.

interpreted Acharya's comments as a signal to state banks to pare bond holdings.

"It is such a great that it seems almost unbelievable," said a

A said that if the central banks buys debt, it will be "great news" and "seems almost unbelievable".

"After the RBI's strong comments for the public sector banks, no one was buying Now it looks like the government is not happy with this situation," the trader said.

India on Thursday widened its target for the year starting in April to 3.3 percent of gross domestic product from its previously mentioned projection of 3.0 percent.

Traders said were now shifting focus to the bond sale later on Friday, when the government is due to issue 110 billion rupees ($1.73 billion) in debt.

First Published: Fri, February 02 2018. 16:51 IST