10-year bonds fall ahead of auctions as stocks advance

India’s 10-year bonds fell on speculation investors may demand higher yields to buy new securities the government is selling at auctions tomorrow.

The central bank will offer Rs 11,000 crore ($2.3 billion) of debt as part of the government’s plan raise a record Rs 4.51 lakh crore by selling bonds in the fiscal year ending March 31 to bridge a widening budget deficit. Local funds may also prefer to buy more stocks as the benchmark Sensitive Index rose for a fifth day to a 15-month high.

“There is pressure on yields to rise because of the supply that is due,” said Kamlesh Chand, a fixed-income trader at IndusInd Bank in Mumbai. “There is probably some attraction toward equities as well because of the rise in the stock market.”

 

The yield on the 6.90 per cent note due July 2019 rose eight basis points to 7.43 per cent as of the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price dropped 0.57 per cent, or 57 paise per Rs 100 face amount, to Rs 96.35. A basis point is 0.01 percentage point.

The central government would sell Rs 5,000 crore of 7.4 per cent notes due 2012, Rs 4,000 crore of 6.35 per cent debt due 2020, and Rs 2,000 crore of the 8.28 per cent security maturing in 2032, the central bank said on September 4.

Fewer bonds
The government might consider selling fewer bonds in the coming quarters “if there were substantial savings” from expenditure cuts announced this week, Finance Secretary Ashok Chawla said on September 8. India would review the borrowing programme for the six months to March 2010 in the next two weeks, he said.

Indian government bonds lost 6.3 per cent this year, the worst performance among 10 local-currency debt markets tracked by HSBC Holdings Plc’s indexes. The local Sensex stocks gained 68 per cent during the period.

The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased most since August 10. The rate, a fixed payment made to receive floating rates, climbed to 6.60 per cent from 6.43 per cent yesterday.

Re declines for a 2nd day as importers buy dollar
The rupee declined for a second day on speculation the nation’s refiners bought foreign currency to pay for crude-oil imports.

The rupee extended its loss this quarter to 1.5 per cent, the worst performance among the 10 most-traded Asian currencies outside of Japan, as oil companies such as Indian Oil Corp may have stepped up dollar purchases to cover the increasing cost of crude. The commodity traded above $71 a barrel today after advancing more than 5 per cent this week.

“The rupee opened stronger but is being pressured down by persistent dollar demand from oil companies,” said Vikas Babu, a foreign-exchange trader in Mumbai at state-owned Andhra Bank.

The rupee weakened 0.3 per cent to Rs 48.63 a dollar as of the 5 pm close in Mumbai, according to data compiled by Bloomberg.

Offshore contracts indicated the rupee would trade at Rs 48.69 to a dollar in a month, compared with expectations of Rs 49.57 at the end of last week.

Crude oil in New York has risen 61 per cent this year. India imports almost three-quarters of the oil it uses. The cost of the nation’s overseas oil purchases rose 13 per cent in July to $5.6 billion, adding to a 21 per cent increase in June, government data show.

The rupee climbed earlier on speculation gains in Asian stocks and signs of an economic recovery will encourage investors to add to their holdings of regional assets.

Net daily purchases of Indian shares by foreigners averaged $228 million this week, the most since May, according to data released by the Securities & Exchange Board of India. The MSCI Asia-Pacific Index of equities climbed 1.2 per cent while the Bombay Stock Exchange’s Sensitive Index climbed for a fifth day to a 15-month high.

“The continuing rally in Asian stocks is encouraging,” Andhra Bank’s Babu said.