Bonds decline on speculation of rate increase

Bonds dropped, pushing yields close to a two-month high, on speculation the central bank will boost borrowing costs next week.

The Reserve Bank of India may raise its repurchase auction rate by 25 basis points to 7 per cent when it meets on May 3, according to 18 of the 22 economists surveyed by Bloomberg. Four forecast a 50-basis point increase. The monetary authority has raised its overnight lending rate two times this year.

RUPEE RISES
The rupee gained for a second day after the Federal Reserve renewed its pledge to keep US interest rates near zero, boosting speculation fund flows into higher-yielding emerging-market assets will increase.

The Fed left its benchmark interest rate in a range of zero to 0.25 per cent on Wednesday, where it’s been since December 2008, and Chairman Ben S Bernanke said borrowing costs are likely to stay low for “an extended period.” Overseas funds have bought $1.8 billion more Indian shares than they sold this month, according to the Securities & Exchange Board of India.

CALL RATE STEADY
CALL rate ended stable on overnight call money market on Thursday on alternate bouts of demand and supply. The overnight call rate ended settled the day at its previous closing level of 6.85 per cent. It moved in a range of 7.05 per cent and 6.75 per cent.