The 10-year bonds gained on speculation yields at the highest level in three weeks attracted investors.
Banks and securities companies may have increased purchases as benchmark yields increased by a record 92 basis points last month. Yields had surged after the central bank refrained from cutting interest rates on January 27 and the government’s spending plans fueled concern debt supply will increase. India sold a new 10-year bond at 6.05 per cent on January 30.
The yield on the 6.05 per cent note due January 2019 fell 1 basis point to 5.90 per cent at the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price rose 0.10, or 10 paise per 100-rupee face amount, to 101.10. A basis point is 0.01 percentage point.
India raised its borrowing target for the year ending March 31 to more than Rs 2 trillion ($40.9 billion), from Rs 1.45 trillion set in its budget for the period. The government hasn’t yet decided on any additional amount it may need to borrow, said an official on condition of anonymity on January 30.
The federal government’s budget deficit in the first nine months of the financial year was already 163.8 per cent of the annual target, it said last week. The shortfall was 2.8 per cent of GDP last year.
The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, was little changed. The rate, a fixed payment made to receive floating rates, was at 4.84 per cent, versus 4.83 per cent on January 30.
Rupee
The rupee weakened on concern overseas investors will increase sales of local shares as corporate earnings drop amid the slowest pace of economic growth in six years.
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The currency extended last month’s decline after Tata Motors, India’s biggest truck maker, reported its first quarterly loss in seven years and Mahindra & Mahindra, the nation’s largest maker of utility vehicles, said its third-quarter profit plunged 99 per cent. The benchmark Sensitive Index, or Sensex, lost 2.3 percent last month as overseas funds sold $1.05 billion more than they bought in Indian equities.
The rupee declined 0.1 per cent to 48.93 a dollar at the 5 pm close in Mumbai, according to data compiled by Bloomberg. It weakened 0.2 per cent last month, extending the 19 per cent slump in 2008, which was the biggest in 17 years. Eight of the 10 most-active Asian currencies outside Japan dropped today.
The MSCI Asia Pacific Index of stocks slipped 1.8 per cent today, while the Sensex lost 3.6 per cent.
DLF and Unitech, India’s biggest property developers, over the weekend reported their profits plunged to record lows last quarter as demand dwindled. DLF’s net income fell 69 per cent while Unitech’s profit slid 74 per cent.
Dollar’s strength
Growth in Asia’s third-largest economy will slow to 7 per cent in the year ending March 31, the weakest since 2003, according to the central bank.
“The rupee’s weakness also reflects the dollar’s strength globally,” said Arun Kaul, New Delhi-based treasurer at state- owned Punjab National Bank.
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the franc and Sweden’s krona, increased 0.4 per cent to 86.31 today, extending last month’s 5.8 per cent advance.
Offshore contracts indicate traders bet the rupee will trade at 49.03 to the dollar in a month, compared with expectations for 49.05 on January 30. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.