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Indian bonds see worst year since 2009; better times likely
December 31, 2013 / 12:22 PM / 4 years ago

Indian bonds see worst year since 2009; better times likely

* 10-yr benchmark bond yield ends down 4 bps at 8.82 pct
    * Yields rise 81 bps in 2013, biggest rise since 2009
    * Traders expect range-bound trading in early January 2014

    By Swati Bhat
    MUMBAI, Dec 31 (Reuters) - Indian government bonds rallied
for a second consecutive session on Tuesday, signalling a better
year could be in store after investors this year plodded through
the worst falls in debt prices since 2009. 
    Bond investors took a beating in 2013 as foreign funds fled
markets after the central bank in July unexpectedly raised
short-term interest rates to prop up a rupee that was slumping
to record lows. 
    Persistently high inflation then forced the central bank to
raise interest rates twice this year, even as economic growth
continuing to languish near a decade-low, further hurting
sentiment for domestic debt.
    However, traders expect 2014 to be a relatively calmer year
for bonds with the monetary tightening cycle likely drawing to a
close if inflation continues to show signs of easing.
    Foreign funds have also started buying in December, for a
provisional total of $936.90 million, further raising hopes
about the year ahead.
    "Bond market players will surely hope for 2014 to be a year
with lower volatility. Such high level of volatility that we
saw, and the continued bearishness has led to a fall in market
appetite and a dry-up in volumes," said Arvind Chari, head of
fixed income at Quantum Asset Management.
    "There is a need for foreigners to step up and buy out some
of the supply from the market. This would steady the market and
can stem the rise in yields," he added.
    The benchmark 10-year bond yield closed down
4 basis points at 8.82 percent. 
    For the year, the benchmark yield rose 81 bps,
its biggest annual rise since 2009, having moved in a wide range
of 7.31 percent to 9.48 percent during the year.
    Foreign funds have been net sellers of nearly $8 billion in
2013, excluding the last two trading days of the year, after
having bought $6.6 billion in 2012.
    Key events lurk ahead, starting with inflation indicators in
mid-January that could determine whether the Reserve Bank of
India resumes raising interest rates after staying on hold this
    Investors are also keenly watching how much the government
will cut spending to meet its fiscal deficit target of 4.8
percent of gross domestic product for the year ending in March.
    India's fiscal deficit touched 5.1 trillion
rupees ($82.32 billion) during April-November, or 93.9 percent
of the full-year target, government data showed on Tuesday. 
    Further out, investors are bracing for critical elections
due by May, as any new government will have to tackle structural
challenges such as a persistently high current account deficit.
    In the overnight indexed swap market, the benchmark 5-year
OIS rate closed down 3 bps at 8.41 percent
while the 1-year rate fell 4 bps to 8.45
    For the year, the rates were up 129 bps and 85 bps

 (Editing by Sunil Nair)

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