Bloomberg News

India 10-Year Bonds Gain as Yields at 3-Year High Lure Investors

November 02, 2011

Nov. 2 (Bloomberg) -- India’s 10-year bonds advanced for the first time in four days on speculation yields at the highest level in three years will attract investors.

Yields earlier touched the highest level since August 2008 on concern a potential increase in local fuel prices will spur inflation. The rate on the benchmark bond due 2021 rose 44 basis points last month, the most since May 2009, after the finance ministry raised its bond-sale target for the six months through March 2012 by 32 percent to 2.2 trillion rupees on Sept. 29.

“Some investors probably bought bonds as it may not be a bad idea to lock in yields at these levels,” said M. Natarajan, head of treasury at the Bank of Nova Scotia in Mumbai. “But the fundamentals for bonds continue to be weak, with concerns about inflation and debt supplies.”

The yield on the 7.8 percent securities due April 2021 fell four basis points, or 0.04 percentage point, to 8.91 percent in Mumbai, according to the central bank’s trading system. Earlier, the rate touched 8.97 percent.

Gasoline prices in India may have to be raised by 1.82 rupees a liter in New Delhi, B. Mukherjee, director of finance at Hindustan Petroleum Corp., said today. State-owned Indian Oil Corp. is losing 1.52 rupees on every liter of the fuel it sells, Finance Director P.K. Goyal said by telephone today, declining to comment on whether prices will rise.

Global oil prices rose 18 percent last month in New York, the biggest increase since May 2009, according to data compiled by Bloomberg. The commodity has dropped 0.8 percent in the past two days. India imports about 80 percent of its annual crude requirement.

The wholesale-price index, India’s key measure of inflation, rose 9.72 percent in September from a year earlier, official data show. The gauge has held above 9 percent for 10 months.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was unchanged at 8.22 percent, according to data compiled by Bloomberg.

--Editors: Abhay Singh, Anil Varma

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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