Higher yields woo bond buyers

Indian bonds gained this week as yields near the highest in four months encouraged investors to increase purchases.

Yields on 10-year debt on Jan. 12 jumped the most in a day since May 2002 after the government proposed scrapping a requirement that lenders invest at least 25 per cent of their deposits in government debt.

Bonds also gained on Friday after the nation's capital market regulator raised the limit on holdings of government bonds by overseas investors by 30 per cent.

"There has been substantial selling in recent days and that has provided a chance for some to buy cheaper," said Manoj Rane, treasurer at BNP Paribas SA in Mumbai. "The move to allow more foreign investment in debt may help in the long term, when the market is out of the current bearish trend."

The yield on the benchmark 8.07 percent bond due January 2017 fell 4 basis points, or 0.04 percentage point, to 7.79 per cent, according to the central bank's trading system.