Bond yields fall as RBI rejects bids

Government bonds jumped the most in two months after the central bank rejected all bids at a government debt auction, stoking speculation that it is seeking to cap yields.

Yields on most-traded notes due 2018 tumbled from the highest in almost four months as investors increased bets that the Reserve Bank of India (RBI) won’t allow further rise in the government’s borrowing costs in the coming weeks. India offered to sell Rs 12,000 crore ($2.3 billion) of securities at today’s auction.

The yield on the 8.24 per cent note due 2018 slid 37 basis points to 6.80 per cent at close in Mumbai, according to the central bank’s trading system. It rose as high as 7.37 per cent earlier. The price advanced Rs 2.6 per Rs 100 face amount to 109.65.

RBI has scheduled fresh open market auction on March 16 for Rs 10,000 crore. It intends to purchase the most traded 8.24 per cent 2018 paper through the auction.

Meanwhile, the rupee rose on speculation that global stock gains would encourage investors to increase buys of emerging-market assets.The rupee climbed 0.7 per cent to 51.515 a dollar at close.