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Indian bonds tumble as rupee hits record low; Fed decision hurts
June 20, 2013 / 12:07 PM / 4 years ago

Indian bonds tumble as rupee hits record low; Fed decision hurts

* 10-year bond yield rises 13 bps to 7.39 pct
    * Yield posts biggest single-day rise since April 2012
    * Bonds to remain range-bound in near term - traders

    By Swati Bhat
    MUMBAI, June 20 (Reuters) - Indian government bonds slumped
on Thursday as the rupee's steep fall to a record low raised
concerns about continued foreign selling at a time when emerging
markets are under pressure after the U.S. Federal Reserve
signalled an end to its monetary stimulus. 
    Data from China showing a further slowdown in the economy
also roiled emerging markets. 
    The rupee ended 1.4 percent lower on day after having
touched a life low of 59.9850, prompting the central bank to
rush in to sell dollars via state-run banks which helped it
recover some ground by the close. 
    The prospect of an end to cheap Fed cash is leading to bond
liquidation across emerging markets including India, which is
stuck in a cycle in which a weaker rupee is making foreign
investors sell debt and thus, causing further currency losses.
    Foreign institutional investors (FIIs) have sold a net of 
$4.8 billion in the 21 sessions to Wednesday.
    "Although we do not expect FIIs' selling of bonds to move
the yields significantly higher, the near-term supply pressure
is likely to keep sentiment weak for government bonds," said
Nagaraj Kulkarni, a senior rates strategist for South Asia at
Standard Chartered Bank in Singapore.
    Analysts expect markets to remain range-bound and at some
point valuations are likely to look attractive to local
investors and limit a sharp rise in yields.
    The benchmark 10-year bond yield closed at
7.39 percent, up 13 basis points (bps) on day, its biggest
single-day rise since April 20, 2012. Volume was at a low 378.80
billion rupees compared with the average 600 billion rupees seen
    Dealers will await the outcome of the auction of 420.22
billion rupees ($7.15 billion) in unused government debt limits
later in the day for cues on foreign funds' appetite and
interest in domestic rupee debt.  
    Traders said they would continue to closely monitor
movements in the rupee to gauge its impact on the financing of
the current account deficit, a key parameter being watched by
the central bank as per recent policy statements.
    The benchmark five-year OIS rate ended up
30 bps at 7.25 percent, its biggest single-day rise since July
29, 2008. The one-year rate closed 24 bps higher at
 7.44 percent, its biggest single-day gain since
July 26, 2011.

 (Editing by Subhranshu Sahu)

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