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Bond Yields Climb to Three-Month High Before India Sells $2.8 Billion Debt
India’s 10-year bonds fell for a second day, pushing yields to a three-month high, on speculation investors will pare holdings before the government sells 130 billion rupees ($2.8 billion) of debt tomorrow.
The commerce ministry will publish food inflation data for the week ended July 24 today. An index measuring wholesale prices of food products climbed 9.67 percent in the week ended July 17, the least in more than a year. The benchmark bond yield has increased 20 basis points since the central bank last week raised interest rates for the fourth time this year.
“Nobody wants to take big positions because debt supply problems continue to persist,” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “People are not willing to take any chances before the food inflation data, even though it showed signs of easing last week.”
The yield on the 7.80 percent bond due in May 2020 rose three basis points, or 0.03 percentage point, to 7.87 percent as of 9:55 a.m. in Mumbai, the highest level for a benchmark 10- year note since May 3, according to the central bank’s trading system. The price fell 0.18, or 18 paise per 100 rupee face amount, to 99.52.
India will offer notes maturing in 2017, 2022 and 2032 tomorrow. The auctions are part of the government’s record 4.57 trillion rupees borrowing program for the fiscal year that began April 1.
‘Too Fast’
The Reserve Bank of India on July 27 raised its policy rates to curb inflation that has held above 10 percent for five straight months since February. The reverse-repurchase rate, at which it absorbs excess cash from banks, was increased by half a point to 4.5 percent. It lifted the repurchase rate, which it charges on overnight loans, to 5.75 percent from 5.5 percent.
India’s economic growth may slow if interest rates are increased too fast, Finance Minister Pranab Mukherjee said yesterday, supporting the central bank’s strategy to boost borrowing costs in a “calibrated” way to cool inflation.
“If interest rates are hiked abnormally, naturally, there will be no investment, there will be no growth, there will be no job creation,” Mukherjee said. “If I compromise my economic growth, I can surely control inflation.”
To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net
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