(Bloomberg) -- Indian state-run banks bought a record amount of sovereign bonds on Thursday, taking advantage of the biggest yield jump in 13 months after the country's army said it attacked terrorist camps in Pakistan.
National lenders, the largest holders of government debt, were buyers of a net 169.2 billion rupees ($2.5 billion) of the securities, the most in Clearing Corp. of India data compiled by Bloomberg, going back to 2006. The benchmark 10-year notes recouped some of the previous day's losses on Friday, and the rupee advanced, as India moved to contain military tensions after saying it had conducted surgical strikes late Wednesday on militants just across the border.
“State-run banks are long-term investors and they see every dip as a buying opportunity,” said Vijay Sharma, executive vice-president for fixed income at PNB Gilts Ltd. in New Delhi. “For the long term, Indian bonds offer an attractive option, given the expectation of more interest-rate cuts and improving economic parameters.”
The yield on government notes due September 2026 dropped four basis points to 6.82 percent in Mumbai, according to prices from the central bank's trading system. It jumped eight basis points Thursday, the most for a benchmark 10-year security since August 2015, as India announced the raids.
The rupee rose 0.4 percent, the biggest jump in a week, to close at 66.6150 a dollar, prices from local banks compiled by Bloomberg show. The currency's 0.6 percent decline on Thursday was the steepest in three months.
Escalating tensions between nuclear-armed neighbors India and Pakistan have introduced a sobering note for local financial markets closing out a blockbuster quarter. The rupee has advanced 1.4 percent since the end of June, poised to end a five-quarter losing streak. Benchmark 10-year bond yields have plunged 63 basis points, the most since the three months ended December 2014.
To read more about the rally in Indian sovereign bonds, click here.
The gains have come as Prime Minister Narendra Modi lured global funds to Asia's third-largest economy by paving the way for a national sales tax that's seen adding to growth and by ensuring a smooth transition at the helm of the central bank. Speculation that slowing inflation will allow new Reserve Bank of India Governor Urjit Patel to cut interest rates at next week's monetary policy review have added to the optimism.
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Shikhar Balwani, Amit Prakash
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
