India Bonds Snap 4-Day Gain on Subbarao’s Concern Over Inflation

India’s 10-year bonds declined for the first time in five days after central bank Governor Duvvuri Subbarao said that inflation was “way above” the threshold.

Yields rebounded from a one-month low after commerce ministry data published yesterday showed inflation exceeded 7 percent for the fifth straight month. The benchmark wholesale- price index rose 7.25 percent from a year earlier, after climbing 7.55 percent in May, the ministry said. The monetary authority’s threshold level “may be around 5 percent,” Subbarao said yesterday.

“Investor’s sentiment has been damped after the governor’s comments” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “This means the central bank may not cut rates this month.”

The yield on the 8.15 percent notes due June 2022 rose four basis points, or 0.04 percentage point, to 8.09 percent in Mumbai, according to the central bank’s trading system. The rate touched 8.05 percent yesterday, the lowest for a benchmark 10- year bond since June 15.

The RBI reduced its repurchase rate by 50 basis points to 8 percent in April, after raising it by a record 375 basis points through 2010 and 2011. Subbarao held the repo rate at 8 percent at a meeting on June 18. The next policy review is scheduled on July 31.

“I’m not implying anything by way of what decision we might take at the policy review at the end of July” Subbarao said, speaking at a book release function yesterday. “I’m only saying that inflation is above the threshold.”

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose six basis points to 7.59 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at

To contact the editor responsible for this story: Sandy Hendry at

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