India’s Bonds Decline as Yields at 2-Month Low Deter Investors

India’s 10-year bonds declined as yields at the lowest level in two months deterred buyers.

The notes issued by the finance ministry snapped a five-day gain after Finance Minister Pranab Mukherjee said today inflation has remained “obstinately high.” The benchmark wholesale-price index rose 9.73 percent in October from a year earlier, staying above 9 percent for the eleventh month, according to government data.

“Bonds have probably rallied too much and there was some profit-taking,” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “High inflation may also erode the value of fixed-income securities.”

The rate on the 8.79 percent bonds due November 2021 rose one basis point, or 0.01 percentage point, to 8.60 percent, according to the central bank’s trading system. The rate touched 8.51 percent earlier, the lowest rate for a benchmark 10-year note since Sept. 30. Local financial markets were closed yesterday for a holiday.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose one basis point to 7.92 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: Sandy Hendry at shendry@bloomberg.net

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