Yields rise to 1-week high

The 10-year bond yields held at a one-week high on speculation rising government debt sales will damp demand for the securities. Yields on notes due 2019 climbed after touching the day’s low of 6.14 per cent as three Indian states sold a total Rs 26,400 crore of 10-year debt at an auction today. The federal government sold Rs 10,000 crore of treasury bills at a separate auction.

“The government may need to increase its borrowing because revenue may not match expenditure, given the economic slowdown,” said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai. “Bond yields should rise from here as debt supply increases.”

The yield on the 6.05 per cent note due February 2019 was unchanged at 6.21 per cent at close in Mumbai, according to the central bank’s trading system. The price was at 98.80 per 100-rupee face amount.

The government plans to raise a record Rs 2.41 lakh crore from bond sales in the six months ending September 30 as it increases spending to revive economic growth. Asia’s third-biggest economy is forecast by the central bank to grow at the slowest pace since 2003 in the current financial year.

Rupee weakens
The rupee weakened for a second day, falling 0.5 per cent to 50.52 per dollar, on speculation that the domestic companies were stepping up dollar purchases to meet month-end debt and import payments.

The rupee closed at the lowest level in almost a month as offshore forward contracts showed investors increased bets for further weakness in the currency against the dollar. Demand for the greenback may have increased after the rupee strengthened in each of the last seven weeks, the longest winning streak since October 2007. A stronger local currency reduces the cost of overseas purchases.

“The rupee is facing temporary headwinds because of dollar demand related to month-end import payments as well as repayment of overseas debt by companies,” said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai.

Offshore contracts indicate traders are betting the rupee will weaken to 50.79 to the dollar in a month.