Bonds Have Longest Winning Run in Two Months as Indian Inflation May Slow

India’s 10-year bonds gained for a third day, the longest winning streak in more than two months, before a report next week that economists forecast will show inflation slowed.

The yield on the notes dropped to a three-week low on speculation the central bank will temper the pace of interest- rate increases, after raising borrowing costs four times this year. The wholesale price index rose 9.6 percent from a year earlier in August, following a 10 percent gain in July, according to the median estimate of economists surveyed by Bloomberg. The data are due on Sept. 14.

“Investors expect the central bank to soften its monetary stance and pause rates if inflation continues to moderate as expected,” said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai. “That is driving up demand for bonds.”

The yield on the 7.80 percent note due May 2020 dropped three basis points to 7.91 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. The price rose 0.18, or 18 paise per 100 rupee face amount, to 99.25. Trading will be closed tomorrow for a holiday.

The central bank may raise its repurchase auction rate, at which it lends to banks, by 25 basis points to 6 percent at its policy review on Sept. 16, said Arya. A basis point is 0.01 percentage point.

The government raised 110 billion rupees ($3.4 billion) by selling bonds maturing in 2015, 2022 and 2027 today. The auctions are part of the government’s record 4.57 trillion rupees borrowing plan for the fiscal year that started April 1.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, decreased. The rate, a fixed payment made to receive floating rates, fell three basis points to 6.10 percent.

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