Bloomberg News

India’s Bond Yield Approaches 3-Year High on Inflation Concern

October 12, 2011

Oct. 12 (Bloomberg) -- India’s 10-year bonds fell, driving yields toward a three-year high, as a government report this week may show inflation was near a 13-month peak in September.

The wholesale-price index rose 9.75 percent last month, according to the median estimate of 20 economists in a Bloomberg survey before the data is released on Oct. 14. That compares with a 9.78 percent gain in August that was the most since July 2010. The Reserve Bank of India has boosted borrowing costs 12 times since the start of last year to help quell rising prices.

“More rate increases may be in store,” said Krishnamurthy Harihar, treasurer at FirstRand Ltd. in Mumbai. “Inflation remains sticky and that has to be tackled.”

The yield on the 7.8 percent notes due April 2021 rose three basis points, or 0.03 percentage point, to 8.74 percent in Mumbai, according to the central bank’s trading system. It reached 8.75 percent on Oct. 10, the highest for a benchmark 10- year bond since August 2008.

The yield has climbed 30 basis points since the finance ministry increased its bond-sale target by 32 percent for the fiscal year ending March 2012 on Sept. 29.

Reserve Bank Deputy Governor Subir Gokarn said in Jaipur today that inflation still remains high. The next central bank policy review is on Oct. 25.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose 10 basis points to 8.07 percent, according to data compiled by Bloomberg.

--Editors: Abhay Singh, Indranil Ghosh

To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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