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India's 10-year bond posts biggest daily gain in four months
August 13, 2014 / 12:12 PM / 3 years ago

India's 10-year bond posts biggest daily gain in four months

* 10-year bond yield ends down 9 bps at 8.76 pct
    * Hopes for auction cancellation, fall in crude prices aids
    * Geo-political uncertainties to remain in focus in

    By Swati Bhat
    MUMBAI, Aug 13 (Reuters) - India's benchmark 10-year bond
saw its biggest single-day gain in four months on Wednesday on
hopes the government would sell less debt after receiving
surplus profit from the central bank earlier this week, while a
drop in crude prices also aided.
    The Reserve Bank of India had announced last week it would
slash the size of this week's auction to 80 billion rupees
($1.31 billion) from 140 billion rupees, leading to hopes that
future auctions would also be cut or possibly cancelled.     
    India's central bank said on Sunday its board had approved
the transfer of a surplus profit of 526.79 billion rupees to the
government for the year ended June 2014, which traders said may
reduce the need for proceeds from debt auctions in the near
    Expectations of lower borrowing helped offset initial falls
in bonds at the start of the session after data on Tuesday
showed consumer price inflation accelerating to a two-month
    Brent crude oil fell for a fourth straight day on Wednesday
to its lowest in more than a year, dropping below $103 a barrel
as strong supplies overshadowed fears of disruptions from
violence in OPEC member Iraq. 
    "There is likelihood that auction postponements may happen
as the government has enough cash balance for now and their
expenditure will be bunched up at the end of the month," said
Arvind Chari, head of fixed income and alternatives at Quantum
    The benchmark 10-year bond yield closed at
8.76 percent, its lowest level since Aug. 5 and down 9 bps on
the day, its biggest single-day fall since April 17.
    The new 10-year bond yield dropped 8 basis
points on the day to end at 8.54 percent.
    The rally in bond markets comes after prices tumbled earlier
this month on falling hopes for interest rate cuts this year
after the Reserve Bank of India reiterated its commitment to
bring down consumer inflation to 6 percent by January 2016.
    Sentiment is, however, expected to remain cautious amid the
violence in Iraq and Ukraine, holding the market in a range.
    The 10-year benchmark bond yield touched a three-month high
of 8.89 percent in intraday trade on Friday.
    In the overnight indexed swap market, the benchmark 5-year
swap rate closed down 2 basis points on the day at 8.12 percent,
after touching 8.18 percent earlier, its highest since May 23.
    The one-year rate ended at 8.48 percent, down 2 bps on the
day, after earlier touching 8.52 percent, its highest since May
 (1 US dollar = 61.2200 Indian rupee)

 (Editing by Prateek Chatterjee)

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