11-year bonds fall before government resumes debt sales

India’s 11-year bonds fell for a second day on speculation of investors paring holdings of securities before government debt sales resume next week after a two-month hiatus.

The finance ministry will sell $2.7 billion worth of notes in the week starting April 4, according to a calendar published by the central bank on March 25. The auction will be part of the government’s Rs 4.17-lakh crore borrowing programme for the financial year through March 2012. Reserve bank of India Governor Duvvuri Subbarao on Tuesday said higher oil prices may accelerate inflation in India and hurt economic growth.

“Bonds are depressed because supplies will kick in soon,” said Roy Paul, a deputy general manager of bonds and currency trading at Federal Bank Ltd, Mumbai. “Inflation also continues to be a worry.”

The yield on the 8.08 per cent note due on August 2022 rose by three basis points to 8.08 per cent, the highest level since March 24, at close in Mumbai, according to the central bank’s trading system. The bond is India’s most-traded debt.

India imports three-quarters of its energy needs and oil surged 27 per cent in the past 12 months, stoked by political turmoil in West Asia and Libya, which threatens supplies. Subbarao this month raised interest rates for the eighth time in a year to curb inflation, which unexpectedly quickened to 8.3 percent in February from 8.2 per cent the previous month.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, decreased. The rate, a fixed payment made to receive floating rates, fell one basis point to 7.42 per cent.

Rupee strengthens
The rupee strengthened for a second day on optimism export growth will help reduce the nation’s trade and current-account deficits.

The central bank will on Thursday report the shortfall in the current account, a measure of trade and investment flows, narrowed by 42 per cent to $9.15 billion last quarter from the previous three months, according to the median estimate of eight economists in a Bloomberg survey. Exports rose an average 31 per cent in the 12 months through January from a year earlier, compared with an average decline of 12 per cent in the previous 12 months, government data show.

Call rate weak
The call rate continued to remain under pressure on surfeit of liquidity in the banking system. The call rate remained weak and ended down at 7.20 per cent from 7.30 per cent on Tuesday. It moved in a range of 7.30 per cent and 7.20 per cent. The Reserve Bank of India, under the Liquidity Adjustment Facility, purchased securities worth Rs 44,845 crore from 37 bids at one-day repo auction at a fixed rate of 6.75 per cent.