10-year bonds gain

Ten-year bonds gained on speculation the central bank will temper the pace of rate increases after the Federal Reserve pledged to keep borrowing costs low “for an extended period.”

The US economic recovery will be “more modest” than anticipated, policy makers in the world’s largest economy said overnight, sending 10-year Treasury rates to a 16-month low. India’s benchmark yields also dropped before a report tomorrow that economists forecast will show factory output slowed. The Reserve Bank of India (RBI) has “done enough” to cool double-digit inflation, Deputy Governor Subir Gokarn said on August 6.

“Investors seem to think the central bank will raise rates in a measured manner as the global uncertainty is still there,” said Mukesh Kumar, a fixed-income trader at State Bank of Bikaner & Jaipur in Mumbai. “They would like to balance growth and inflation.” The yield on the 7.80 per cent bond maturing in May 2020 dropped three basis points, or 0.03 percentage point, to 7.81 per cent as of the 5:00 pm close in Mumbai, according to the central bank’s trading system. The price rose 0.21 per cent, or 21 paise per Rs 100 face amount, to Rs 99.92.

Rupee falls a second day
The rupee weakened for a second day on concern investor appetite for emerging-market assets will wane amid signs the global economic recovery is faltering.

The currency fell to its lowest level in almost two weeks against the dollar and the MSCI Asia-Pacific Index of regional shares dropped for a third day as the Federal Reserve said it would keep interest rates low to shore up the economy. Cooling growth in developed economies may hurt India’s exports and widen the trade deficit, said Naveen Raghuvanshi, a currency trader in Mumbai at Development Credit Bank.

The rupee depreciated 0.7 per cent to 46.70 per dollar as of the 5 pm close in Mumbai, the weakest level since July 28.

India’s trade deficit widened to $32.3 billion in the first six months of 2010, compared with $23.5 billion in the same period a year earlier.