MUMBAI: Indian federal bond yields fell on Monday after the country announced measures targeting debt markets such as boosting investment limits, but investors were still disappointed the government had not introduced bolder structural reforms.
The measures taken included increasing the limit on foreign institutional investors in government bonds by $5 billion to $20 billion and reducing the lock-in period in some long-term infrastructure bonds to one year from three years. [ID: nI8E8G4012]
Investors had expected more, including a potential bond sale to overseas Indians, but traders said more action could be forthcoming, including addressing withholding taxes on external commercial borrowings.
"Far from giving big bang reform measures, these are very marginal in nature," said B. Prasanna, managing director and CEO of ICICI Securities Primary Dealership. "Having said that, the FII limit increase is positive for rupee. The forward looking dollar return expectations could be strong. So we will see buying interest in bonds over a period of time," Prasanna added.
The 10-year benchmark bond yield ended down 2 basis points to 8.33 percent from Friday's close, after falling to as low as 8.30 percent earlier in the session.
The yield on the new 8.15 percent 2022 paper rose 1 bp to 8.09 percent.
Expectations for bold reforms had been sparked after Finance Minister Pranab Mukherjee said on Saturday that India would unveil measures to arrest the slide in the rupee to record lows.
The continued slump in oil prices also helped, easing concerns about inflationary pressures and raising hopes it would help narrow the country's fiscal and current account deficits.
Hopes for continued bond purchases via open market operations also aided, especially as the slump in the rupee sparked more intervention from the central bank on Monday, after it sold dollars in each of the previous two sessions.
The 1-year overnight indexed swap fell 3 basis points to 7.72 percent, while the longer-end 5-year rate dropped 5 bps to 7.14 percent.
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