Bonds rebound as yield levels attract buyers; R drops
Dec 30: 10-year bonds rebounded after their worst weekly loss in seven on speculation higher yields attracted investors. The rupee dropped.
The rate on the 8.83% sovereign notes due November 2023 rose 16 bps last week to 8.96%, the highest level for benchmark 10-year debt since November 22. That probably drew buyers, according to Bank of Nova Scotia.
The RBI left the repur-chaserateat 7.75% on December 18 and said it “will act, including on off-policy dates if warranted, so that inflation expectations stabilise.”
The move was predicted by only five of 31 economists surveyed by Bloomberg, with the rest estimating an increase to 8%.
The yield on the 2023 bonds slid 10 basis points, or 0.10 percentage point, to 8.86% in Mumbai on Monday, the most since December 18, according to the central bank’s trading system.
Last week’s jump was the biggest since the period ended November 8, data com- piled by Bloomberg show.
“What we are seeing now is a relief rally,” said M. Natarajan, Mumbai-based head of treasury at Bank of Nova Scotia. “Gains are likely to be limited given the uncertainty around the timing of a rate action by the central bank. Everything will depend on how the inflation numbers pan out.”
The rupee, which rose 0.3% last week, fell 0.1% on Monday to 61.9150 per dollar, according to prices from local banks compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, increased one basis point to 10.47%, down from this year’s high of 22.78% in August.
The currency has dropped 11.2% in 2013, a third year of declines and the third-worst performance in Asia after the Indonesian rupiah and yen, data compiled by Bloomberg show. Government bonds have returned 1.09%, after rising 10.9% in 2012, according to an index compiled by HSBC Holdings. Bloomberg