Bonds in India Gain After Central Bank Announces Debt Purchases

(Bloomberg) -- Sovereign bonds rallied in India after the central bank said it will resume open-market purchases of debt.

The yield on the benchmark 2029 debt fell 4 basis points to 7.43 percent, while that on the most-traded 2028 securities was down 6 basis points. High crude oil prices and the central bank taking a less dovish path than many had expected had pushed up 10-year yields in recent weeks.

The Reserve Bank of India in a statement late Tuesday said it would buy 250 billion rupees ($3.6 billion) of bonds next month, surprising traders who were concerned the central bank would trim its purchases after recently switching to currency swap auctions to ease a cash crunch. The authority bought a record 3 trillion rupees of debt in the fiscal year that ended March 31, helping absorb most of the federal supply.

“We welcome RBI Governor’s decision to announce a de-facto durable liquidity calendar to assure markets,” Bank of America Merrill Lynch economist Indranil Sen Gupta wrote in a note. Injecting $2 billion-$3 billion of cash monthly would help banks to pass on the RBI’s recent rate cuts to consumers, he said.

Banking system liquidity deficit rose to 1.5 trillion rupees as of April 22, the highest so far this year, according to the Bloomberg Economics India Banking Liquidity Index.

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