Bonds advance on rupee rebound, FIIs

Bonds due 2022 advanced for a second day as the rupee's advance from a record low tempered concern inflation will quicken.

The currency rose 0.8 per cent in a second day of gains on Wednesday as regulators took steps to curb speculative trade. It touched an all-time low of 61.2125 on July 8. Global funds were net buyers of rupee debt for the first time in 14 days on July 8, exchange data show. They have cut holdings of local bonds by $8.1 billion (Rs 48,454 crore) since May 22, when the US Federal Reserve first signaled it may pare stimulus that has driven flows to emerging-market assets.

"A steady currency would definitely provide comfort to bond markets, but it's too early to say the rupee has stabilised," said Lakshmi Iyer, head of fixed income at Kotak Mahindra Asset Management Co in Mumbai.

The yield on the 8.15 per cent notes due June 2022 fell two basis points, or 0.02 percentage point, to 7.66 per cent in Mumbai, according to the central bank's trading system.

US stimulus
The rupee weakened 4.9 per cent last month, the most since May 2012. Global funds' holdings of Indian bonds were at an all-time high on May 21, a day before Fed Chairman Ben S Bernanke indicated the central bank's asset-buying programme could be tapered if the US job market continues to improve. The Reserve Bank of India barred banks from proprietary trading in currency futures and exchange-traded options, while the Securities and Exchange Board of India said it would raise margin requirements and curtail open positions.