Bonds gain as yields near 15-month high lure investors

India’s 10-year bonds gained the most this week, as yields near the highest levels since October 2008 attracted investors.

The yield on the benchmark note climbed yesterday on speculation that a pickup in industrial output and China’s decision to rein in bank lending will spur the Reserve Bank of India to raise borrowing costs to curb inflation. The central bank is scheduled to review its monetary policy at a January 29 meeting. India’s cost of selling 10-year debt climbed by a record 2.3 percentage points in 2009.

“Benchmark bonds have already discounted any monetary tightening that the RBI may implement in the near term,” said Anand Bagri, head of fixed-income at Axis Bank in Mumbai. “Yields should remain capped around current levels until the RBI meeting and move lower afterwards. A yield of 7.7 per cent on the 10-year bond looks very good.”

Rupee advances on dollar sales buzz
Rupee rose on speculation that its biggest drop yesterday in almost eight weeks encouraged exporters to sell dollars and boost profit in local-currency terms.

The rupee rose 0.2 per cent to 45.63 per dollar as of 5.30 pm close in Mumbai, from 45.72 at the previous close, according to data compiled by Bloomberg. It declined 0.9 per cent yesterday. Analysts believe the currency may trade between 45.50 and 45.85 over the next week.

“We have moved from being exclusively focused on growth to now taking a balanced approach, which has certain implications in terms of adequate liquidity,” Subir Gokarn, Deputy Governor at the Reserve Bank, said in Mumbai yesterday.

Offshore contracts indicate bets the rupee will trade at 45.66 to the dollar in a month, compared with expectations of 45.57 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non- deliverable contracts are settled.