MUMBAI (Dow Jones)--Indian government bonds gained Thursday as traders anticipated strong demand for the sovereign issuances in Friday's auction with the availability of relatively popular papers.
The 6.35% 2020 bond ended at INR89.11, higher than Wednesday's INR88.95 close.
"The auction should go pretty well with sentiment fairly strong," said a trader with a foreign bank. "There should be good demand for both the floating rate bond and the 2016 bond."
The Reserve Bank of India will sell INR120 billion of government bonds Friday, including INR30 billion of the 10-year floating-rate bond and INR60 billion of the 7.02% 2016 note.
Banks are able to take on minimal interest-rate risk by investing their surplus liquidity in floating-rate bonds while shorter-tenor bonds carry a lower interest rate risk level when compared to longer-tenor bonds.
The central bank, at its monetary policy meet Tuesday, raised it key policy rates and the part of deposits that banks must set aside with the RBI by 25 basis points, calming concerns of more aggressive action and encouraging demand for bonds.
The move also helped to blunt the impact on bond prices after another uptick in food and fuel prices Thursday. Data issued by the Ministry of Commerce and Industry showed the wholesale price index for primary articles rose 0.6% in the week to April 10.
In the currency market, the Indian rupee ended a tad higher in volatile trade against the U.S. dollar on the back of firm local stocks, and one-time inflows from telecom firms, despite the strength in the global dollar on fresh concerns of a Greek sovereign default.
The dollar was at INR44.54 late Thursday, compared with INR44.56 late Wednesday.
"There was some fairly strong dollar selling from some telecom firms earlier in the session," said a trader with a foreign bank.
But, "the market positioned itself to cover shorts (on the dollar) after the euro came off," helping pare the rupee's early gains, the trader added.
The Bombay Stock Exchange's Sensitive Index gained 101.43 points, or 0.6%, to end at 17,573.99.
Source : online.wsj.com