Bonds advance as 17-month high

• tanvi_singh
• March 10, 2010

Yields have increased 10 basis points since Finance Minister Pranab Mukherjee announced in his Budget that Rs 4.57 lakh crore ($100.3 billion) will be raised from the market. India needs fiscal restraint to resume a faster pace of economic growth, Mr Mukherjee said on March 6.

“Investors probably see some silver lining, since there is no borrowing scheduled until the end of March,” said Roy Paul, assistant manager of treasury at Federal Bank in Mumbai. “But concerns about heavy borrowing next year are not going to fade away.”

The yield on the 6.35% note due January 2020 fell 4 basis points to 7.96%, according to the central bank’s trading system. The price rose 0.26, or 26 paise per Rs 100 face amount, to 89.15.

RBI governor D Subbarao said while bonds yields have risen, they are still “reasonable”. “Yields have hardened a little bit,” he said. “We’ll manage the programme in such a way that yields are within reasonable limits and interest rates don’t have a negative impact on the competitiveness of the economy.” Subbarao has kept the RBI’s benchmark reverse repurchase rate at a record-low of 3.25% since April. In January, he raised the proportion of deposits that lenders need to keep as reserves to 5.75% from 5%.
India may expand 8.2% in the 12 months from April 1, compared with an estimated 7.2% this year, the finance ministry forecast last week. Growth averaged 9.5% annually between 2006 and 2008.

The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased. The rate, a fixed payment made to receive floating rates, fell to 7.03% from 7.05% on Monday.
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• Last Modified: March 10, 2010
• Filed Under: Latest News, MARKETS, NATION, WORLD