Bond yields hold near 3-week high before new debt sales

Eleven-year bond yields held near a three-week high on speculation demand for the notes will wane as the government starts debt sales for the new fiscal year in April.

The nation plans to borrow Rs 4.17 lakh crore ($92.7 billion) in the 12 months beginning April 1, Finance Minister Pranab Mukherjee said February 28. Government and central bank representatives will meet on March 25 to fix the bond auction schedule for the next six months, a finance ministry official said March 19, declining to be identified as the budget information was confidential.

Bond yields will rise “in the next fiscal year on supply pressures,” analysts at Barclays Capital, led by Singapore- based Kumar Rachapudi, wrote in a research note on Tuesday. “The pressure on rates will be more acute in the first half as typically the government issues about 65 per cent of its bonds” during that period, they wrote.

The yield on the 8.08 per cent note due August 2022 was at 8.12 per cent at the 5 pm close in Mumbai, compared with 8.13 per cent yesterday, according to the central bank’s trading system. Yesterday’s closing level was the highest since February 25.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, declined. The rate, a fixed payment made to receive floating rates, dropped two basis points to 7.45 per cent.

Rupee climbs 

The rupee climbed to its strongest level in more than two weeks as signs Japan’s nuclear crisis is easing spurred speculation investor appetite for emerging-market assets will increase.

The rupee advanced for a third day as the Bombay Stock Exchange’s Sensitive Index rose 0.8 per cent after the US Nuclear Regulatory Commission said yesterday that radiation- containment units at Fukushima’s Dai-Ichi nuclear reactors are intact. The Dollar Index, which tracks the greenback against the currencies of six major US trading partners, fell to a 15- month low of 75.25 on Tuesday.

The rupee appreciated 0.1 per cent to 44.965 per dollar at the 5 pm close in Mumbai, according to data compiled by Bloomberg. It rose to 44.9375 earlier, the strongest level since March 4. The currency may rise to 44.70 by the end of this month, Bhatt predicted.

Offshore forwards indicate the rupee will trade at 45.73 to the dollar in three months, compared with expectations for a rate of 45.87 yesterday. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Call rate remains firm
Call rates continued to rule firm on the overnight call money market on liquidity crunch.

The call rate ended better at 7.75 per cent from 7.70 per cent yesterday. It moved in a range of 7.85 per cent and 7.60 per cent.