India’s Bonds Snap Two-Week Gain as Fed Signals Rate Increase 

India’s 10-year bonds capped the first weekly decline in three on concern fund inflows into high-yielding assets will slow after the Federal Reserve signaled U.S. interest rates will be raised.

The Fed cut its monthly debt purchases by $10 billion for the third straight meeting on March 19, paring the stimulus to $55 billion, and said the program may end in the second half. The first increase in U.S. rates could be around six months after that, Fed Chair Janet Yellen said. Foreign investors cut holdings of Indian debt by $143 million this week through March 19. The South Asian nation’s fiscal year ends March 31.

“The Fed decision has impacted sentiment,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. “Overall, bond markets are lackluster with investors just re-balancing portfolios as we near the end of the fiscal year and nobody is willing to take any large bets.”

The yield on the 8.83 percent Indian bonds due November 2023 ended at 8.796 percent in Mumbai today compared with 8.792 percent on March 14, according to the central bank’s trading system. The rate fell two basis points today, or 0.02 percentage point, after climbing to 8.82 percent yesterday, the highest level since March 5.

Ten-year yields may rise to around 9.25 percent or 9.50 percent by June as inflation rebounds on gains in local farm prices and a rally in global soft commodities, Ritesh Jain, chief investment officer at Tata Asset Management Ltd., said in an interview in Mumbai yesterday.

This week’s outflows from rupee-denominated debt pared the year’s inflows to $6.2 billion. Bonds should find support after the Reserve Bank of India said yesterday it will take steps to inject additional cash into the banking system to help lenders meet financial year-end requirements, said Sagar Shah, associate vice-president for treasury at RBL Bank in Mumbai.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose one basis point this week to 8.66 percent, according to data compiled by Bloomberg.

(By Shikhar Balwani)

Source: bloomberg

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