Bloomberg News

India Bond Yield Stays Near Highest Level Since ’08 on Inflation

October 13, 2011

Oct. 13 (Bloomberg) -- India’s 10-year bond yield was near its highest level since August 2008 before government data tomorrow that’s forecast to show inflation in September was little changed from a 13-month high reached in August.

The wholesale-price index rose 9.75 percent from a year earlier after gaining 9.78 percent in August, according to the median estimate of 21 economists in a Bloomberg survey. The finance ministry will sell 130 billion rupees ($2.6 billion) of notes due in 2018, 2021 and 2027 tomorrow. The 10-year yield increased 29 basis points since the government boosted its bond- sale target for the six months through March by 32 percent on Sept. 29.

“The outlook for bonds continues to be bearish due to concern over inflation and steady supply of bonds,” said Ganti N. Murthy., head of fixed income in Mumbai at Peerless Mutual Fund. “Investors will be watching the demand at auctions for near-term cues.”

The yield on the 7.8 percent notes due April 2021 slipped one basis point, or 0.01 percentage point, to 8.73 percent in Mumbai, according to the central bank’s trading system. It reached a three-year high of 8.75 percent on Oct. 10. The price increased 0.08, or 8 rupees per 10,000 rupee face amount, today to 94.11.

Reserve Bank of India Governor Duvvuri Subbarao said yesterday inflation must ease before the central bank can reduce interest rates. The central bank has increased the repurchase rate six times this year to 8.25 percent.

The next policy review is on Oct. 25. Investors have already factored in a 25 basis point increase in the repurchase rate this month, Murthy said.

Inflation rate of more than 9 percent is above the Reserve Bank of India’s “comfort level,” Subbarao said today.

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: James Regan, Ven Ram

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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