By V. Ramakrishnan Dec. 17 (Bloomberg) -- India’s bonds snapped a two-day slide on speculation the central bank will refrain from raising borrowing costs this month as quarterly corporate tax payments have drained cash from the financial system. Lenders’ subscriptions at the Reserve Bank of India’s daily money-market auctions fell yesterday to 594 billion rupees ($12.7 billion), the least since March. Bonds were also supported by optimism that demand will increase as government debt sales slow. India is scheduled to borrow 290 billion rupees this month, according to the central bank, less than half the record 600 billion rupees raised in June. Bonds halted declines “as the market believes the central bank will wait for some time before making any policy move,” said Srinivasa Raghavan, head of treasury at IDBI Gilts in Mumbai. “Any action now could push up overnight rates, given the drop in liquidity. Also, this month’s debt sales are almost over.” The yield on the 6.9 percent note due July 2019 was little changed at 7.68 percent as of 10:10 a.m. in Mumbai, according to the central bank’s trading system. It rose 0.12 percentage point in the last two days. The price was at 94.80 per 100 rupee face amount. In the derivatives market, 10-year bond futures maturing in December were quoted at 7.97 percent, according to the Web site of the National Stock Exchange of India Ltd. Contracts due March were at 8.22 percent. The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, decreased. The rate, a fixed payment made to receive floating rates, fell to 6.92 percent from 6.96 percent yesterday. To contact the reporter on this story: V.Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net.

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