10-year bond yields climb

MONEY MARKET ROUND-UP

The 10-year bonds completed the biggest monthly loss in at least a decade as concerns mounted that the government will borrow more than planned to finance additional spending. Benchmark yields climbed to the highest in three weeks after the government sold debt at higher than expected yields at an auction on Friday.

Bonds ended a five-month rally after the central bank this week refrained from cutting interest rates and said the budget deficit will be “substantially higher” than estimates.

“Investors have indicated through the auction outcome that the government will have to pay more if it intends to borrow more than planned,” said Kamlesh Chand, a fixed-income trader at Mumbai-based IndusInd Bank Ltd. “Bond yields will stay higher now.”

The yield on the 8.24 percent note due April 2018 surged 92 basis points this month to 6.17 per cent as of the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price fell Rs 7.79 per 100-rupee face amount, to 114. A basis point is 0.01 percentage point.

India sold Rs 4,000 crore ($816.5 million) of a new 10 year bond at a maximum yield of 6.05 per cent, the central bank said. It also sold Rs 3,000 crore each of the 7.56 per cent note due in 2014 and the 6.83 per cent security due in 2039 at 6.0163 per cent and 7.3487 per cent yield respectively.

Traders had expected the government to sell the 10-year debt at a cut-off yield of 6.03 per cent, the five-year bond at 6 per cent, and the 30-year bond at 7.10 per cent, according to the median estimate in a Bloomberg News survey.

Rupee

The rupee completed a monthly loss as overseas funds dumped stocks on concern the global economic slump will hurt growth and erode earnings.

The currency extended last year’s 19 per cent slide, the steepest since 1991, as the Reserve Bank of India this week lowered the growth forecast to 7 per cent for the year ending March 31, the slowest in six years. The next fiscal year will be “more difficult,” Governor Duvvuri Subbarao said on January 27. The benchmark stock index slumped 2.3 per cent this month as equity sales by foreigners exceeded purchases by $1.1 billion.

The rupee declined to 48.875 per dollar at the 5 pm close in Mumbai, from 48.775 on December 31, according to data compiled by Bloomberg. It may drop to 49.25 in a week, Mahanta said. Nine of the 10 most-active Asian currencies outside of Japan weakened this month.The rupee gained 0.2 per cent on Friday as local shares climbed as the Bombay Stock Exchange Sensitive Index added 2 per cent.

Implied volatility on one-month dollar-rupee options fell to 11 per cent on Friday, the lowest since September 1, Bloomberg data show.

The measure of exchange-rate fluctuations touched 33 per cent on October 27, the highest in at least nine years. Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of option prices.