Bloomberg News

India 10-Year Bond Yield Rises to Two-Month High on Weak Monsoon

August 06, 2012

India’s bonds fell, sending yields to the highest level in almost two months, on concern inadequate seasonal rainfall will curb farm output and spur food inflation.

India’s monsoon rains this year were 18 percent below normal as of yesterday, the state weather forecaster said on its website. That may prompt the central bank, which cited inflation risks as it refrained from cutting interest rates last week, to delay further policy easing, according to Nomura Holdings Inc. Bonds also declined on speculation demand for existing securities will weaken as the government boosts debt sales to meet a record borrowing target for the year through March 2013.

“We are looking at backloaded interest-rate cuts now, given inflationary concerns,” said Vivek Rajpal, a fixed-income strategist in Mumbai at Nomura. “Investors are probably in no hurry to buy bonds given the current debt-supply environment.”

The yield on the 8.15 percent securities due June 2022 rose two basis points, or 0.02 percentage point, to 8.27 percent as of 10:35 a.m. in Mumbai, according to the central bank’s trading system. That rate is the highest level for benchmark 10-year bonds since June 11.

Nomura predicts the Reserve Bank of India will hold its repurchase rate at 8 percent in 2012. Governor Duvvuri Subbarao last cut the repo rate by 50 basis points in April, after raising it by a record 375 basis points through 2010 and 2011. The rate was left unchanged at a policy review on July 31.

The finance ministry plans to borrow 5.69 trillion rupees ($103 billion) this fiscal year, according to budget estimates.

The benchmark wholesale-price index rose 7.25 percent in June from a year earlier, after climbing 7.55 percent in May, the commerce ministry last month.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, were little changed at 7.76 percent, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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