Rupee rises to five-week high, bonds climb

The rupee climbed to a five-week high on speculation that a global stocks rally will damp risk aversion and revive investment in emerging-market assets. The rupee advanced 0.6 per cent to 50.355 per dollar at the close of trading, according to Bloomberg data.

It earlier reached 50, the strongest since February 25, and has rebounded more than 3 per cent since reaching a record low of 52.1850 on March 3. The rupee strengthened for a third day and local shares gained after the US home sales rebounded and Treasury Secretary Timothy Geithner said there are “encouraging signs” a global financial crisis is easing.

Overseas funds’ equity purchases exceeded sales in March after net sales in February, data from Securities & Exchange Board of India show. “The performance of equity markets across the world suggests investor confidence is returning,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “The rupee is drawing strength from that and I think it will continue in the near term.”

Offshore contracts indicate traders bet the rupee will trade at 50.5 to the dollar in a month, compared with expectations of 51.01 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

“Indonesia, and even India, China to some extent, have a domestic demand story,” Sebastien Barbe, head of emerging- market research and strategy at Calyon in Hong Kong said in an interview with Bloomberg Television. “For the rupee, we can have something like 8 to 10 percent appreciation in the next three to four quarters.”

The Group of 20 summit convenes in London today amid signs that the world economy is stabilising. US President Barack Obama, UK Prime Minister Gordon Brown and their G-20 counterparts — responsible for 85 per cent of the world economy — are gathering to push an agenda aimed at ending the slump and avoiding a repeat of the financial crisis that caused it.

Bond yields fall as govt to draw down on MSS

Bonds rose for a second day after the government said it will use more funds from its stabilisation account to finance spending, helping limit the need for new debt sales.

The yield on the benchmark 10-year notes fell after the government on March 31 said it will transfer the remaining Rs 33,000 crore ($6.5 billion) of stabilisation funds that it had decided to draw in the financial year ended March 31. The Reserve Bank of India (RBI) said only Rs 12,000 crore of the Rs 45,000 crore earmarked for the government was used.

The extra funds will help reduce the amount of debt the government sells as it boosts spending to combat an economic slump, according to Mahesh Pai, a fixed-income trader at state-owned Canara Bank. India has sold stabilisation bonds since 2004 to prevent cash in the banking system from fanning inflation.

The yield on the 6.05 per cent note due February 2019 fell six basis points to 6.95 per cent at the close from March 31, according to RBI’s trading system.

The price rose 0.41, or 41 paise per 100-rupee face amount, to 93.65. The market was shut yesterday as banks and securities firms were closed for their annual accounts closing following the end of the fiscal year on March 31.