Ten-Year Bond Yields Reach Two-Year High on India Rate-Rise Speculation

India’s 10-year bonds dropped for a fourth day on concern the central bank will increase interest rates at its policy review next month to cool inflation.

Yields climbed to the highest level in two years after the benchmark wholesale price index rose 8.6 percent in September from a year earlier. It gained 8.5 percent in August. The central bank has raised interest rates five times this year, the most increases in Asia.

“The market is nervous about another rate increase,” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “Nobody seems to have the courage to hold on to large positions given the negative sentiment among investors.”

The yield on the 7.80 percent note due May 2020 rose two basis points to 8.11 percent as of 9:52 a.m. in Mumbai, according to the central bank’s trading system. The yield earlier touched 8.13 percent, the highest level since October 2008. The price fell 0.13, or 13 paise per 100 rupee face amount, to 97.95.

The central bank may raise the reverse repurchase rate, at which it absorbs cash from lenders, by 50 basis points to 5.5 percent and the repurchase rate by 25 basis points to 6.25 percent at its policy review on Nov. 2, Verma said.

Inflation still remains “well above” the central bank’s “comfort zone,” Deputy Governor Subir Gokarn said Oct. 5 in Mumbai, prompting speculation of more monetary tightening.

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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