India’s Bonds Drop Most in Two Weeks as Growth Beats Estimates

India’s 10-year bonds fell the most in two weeks as the government reported an unexpected pickup in economic growth.

Gross domestic product rose 5.5 percent in the three months through June from a year earlier, exceeding the 5.2 percent gain estimated in a Bloomberg News survey of economists. Asia’s third-largest economy expanded 5.3 percent in the previous quarter. Reserve Bank of India Governor Duvvuri Subbarao left the benchmark repurchase rate unchanged at 8 percent for a second meeting in July to curb inflation.

“The data has quelled any expectation of immediate monetary easing,” said Killol Pandya, the Mumbai-based head of fixed-income investments at the local unit of Daiwa Asset Management Co. “The hawkish policy tone may continue.”

The yield on the 8.15 percent notes due June 2022 rose three basis points, or 0.03 percentage point, to 8.23 percent as of 12:12 p.m. in Mumbai, according to the central bank’s trading system. It fell two basis points this month. The yield on benchmark 10-year notes dropped 34 basis points this year.

The Reserve Bank of India last cut the repurchase rate by 50 basis points in April. The next policy review is scheduled for Sept. 17.

Reserve Bank of India Deputy Governor Subir Gokarn said on Aug. 19 that inflation is currently the main threat to India’s economy. The consumer-price index rose 9.86 percent from a year earlier in July, compared with a revised 9.93 percent gain in June, the Central Statistical Office said this month.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose four basis points today to 7.81 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: James Regan at jregan19@bloomberg.net

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