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India Bonds Gain as Europe Debt Concern Spurs Demand for Safety

India’s 10-year bonds rose a second day on speculation investors will favor the safety of fixed- income assets after Moody’s Investors Service cut Portugal’s credit rating to below investment grade.

Yields had risen to a three-week high earlier before an auction of 120 billion rupees ($2.7 billion) of notes due in 2017, 2022 and 2027 on July 8. Bonds gained also because the levels were probably good for long-term buyers, said Paresh Nayar, the Mumbai-based head of money market and currency at FirstRand Ltd.

“There is a general tendency of flight to safety during any crisis,” he said. “That attitude is probably driving demand for bonds here as well.”

The yield on the 7.8 percent bonds due April 2021 fell two basis points, or 0.02 percentage point, to 8.33 percent at the 5 p.m. close in Mumbai. It earlier touched 8.37 percent, the highest level since June 15.

Most stocks on India’s benchmark index dropped for the second day. The Bombay Stock Exchange Sensitive Index, or Sensex, fell 0.1 percent to 18,726.97 at the 3:30 p.m. close in Mumbai.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, fell five basis points to 8.04 percent.

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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