Bloomberg News

India Bonds Complete Weekly Drop as Oil Spurs Inflation Concern

February 24, 2012

Feb. 24 (Bloomberg) -- India’s benchmark bonds completed a weekly drop on concern an increase in oil prices will spur faster inflation.

Yields rose to a two-week high as the finance ministry sold 120 billion rupees ($2.4 billion) of notes due in 2020, 2024 and 2030 today. Oil prices for April delivery advanced for a seventh day and touched $108.74 a barrel yesterday in New York, the highest level since May 5. That may prompt refiners to boost fuel costs, according to Krishnamurthy Harihar, treasurer at FirstRand Ltd.

“Oil prices have risen fast and that may bring back inflation worries,” Mumbai-based Harihar said. “Persistent debt supplies are also damping demand for government bonds.”

The yield on the 8.79 percent notes due November 2021 rose four basis points, or 0.04 percentage point, this week to 8.23 percent in Mumbai, according to the central bank’s trading system. The rate advanced three basis points today.

The wholesale-price index increased 6.55 percent in January, the least in 26 months, compared with 7.47 percent in December, according to official data. The rate held above 9 percent in the previous 12 months.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose nine basis points this week to 8.17 percent, according to data compiled by Bloomberg. The rate climbed one basis point today.

--Editors: Andrew Janes, Abhay Singh

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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