Appetite for bonds slowing

Mumbai :  India's 10-year bonds dropped for a second day before a sale of 120 billion ($2.6 billion) of government securities today, which may leave investors with less cash to buy debt.

The government is scheduled to sell notes maturing in 2017, 2022 and 2040, according to the central bank.

The auctions are part of India's record 4.57 trillion rupee borrowing programme for the fiscal year that began April 1.

Asia's third-largest economy expanded at the fastest pace in two-and-a-half years in the second quarter, the Central Statistical Organisation said on August 31, fuelling speculation of monetary-policy tightening.

"Appetite is slightly less because auctions are ahead," said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai.

"The stronger economic growth is also building a case for a rate hike this month."

The yield on the 7.8 per cent bond due in May 2020 rose 2 basis points to 7.978 per cent as of 9:34 a.m. in Mumbai, according to the central bank's trading system. The price fell 0.11, or 11 paise per 100 rupee face amount, to 98.8. A basis point is 0.01 percentage point. The bond yield may move between 7.95 per cent and 8.00 percent until the next policy review on Sept. 16, Verma said.

The Reserve Bank of India has raised its policy rates four times this year to combat inflation which has held near or more than 10 per cent since February.

The reverse-repurchase rate, at which it drains cash from banks, is at 4.5 per cent, while the repurchase rate, which it charges on overnight loans, is at 5.75 per cent.

The benchmark wholesale price index rose 9.97 per cent in July after holding at more than 10 per cent for five months.

Indian bonds are the worst performers this year among 10 Asian local-currency debt markets outside of Japan, according to indexes compiled by HSBC Holdings Plc.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was unchanged.

The rate, a fixed payment made to receive floating rates, was at 6.18 per cent.