Bonds rise as high yields spur buying

MARKET ROUND-UP

India's key 10-year bond gained, ending two days of declines, as yields at the lowest in a week attracted investors to buy debt. Bonds rose the most in a week on speculation that increase in cash surpluses with banks, the biggest buyers of debt securities, will encourage them to debt.

"The prices had fallen a bit too much and today there was a good opportunity to buy,'' said Parthasarathi Mukherji, treasurer at UTI Bank in Mumbai. "Yields can go down a bit more with the help of liquidity," he added.

The yield on the benchmark 8.07 per cent note due January 2017 fell 6 basis points or, 0.06 percentage point, to 7.93 per cent as of the 5:30 pm close in Mumbai, according to the central bank's trading system.

The price rose by Rs 0.38, or 38 paise per 100 rupee face amount, to 100.93. Yields move inversely to prices. Bonds fell the most in two weeks yesterday after the government said it would go ahead with a debt sale planned for this month, contrary to the expectations of traders.

The amount the central bank drained Rs 3,016 crore from the banking system through its daily repurchase agreements, highest since December 6, suggesting cash held by lenders is growing. The Budget deficit as a proportion of gross domestic product will be 3.7 per cent this financial year, P Chidambaram said yesterday.