Indian 10-Year Bonds Drop as Yields at 2010 Low Deter Investors

India’s bonds declined for the first time in seven days on speculation yields at the lowest level since July 2010 will deter buyers.

Benchmark 10-year notes had earlier rallied on optimism the central bank will cut interest rates after official data showed wholesale prices rose 5.96 percent in March, the least since November 2009. Brent crude has rebounded 5.3 percent to 101.9 per barrel since touching the lowest level since July last week.

“Bonds have dropped as there was probably some profit taking,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “The increase in oil prices also damped sentiment.”

The yield on the 8.15 percent bonds due June 2022 rose four basis points, or 0.04 percentage point, to 7.77 percent in Mumbai. The rate touched 7.74 percent earlier today, matching the level on April 23 that was the lowest since July 2010. Financial markets were closed yesterday for a public holiday.

Dash predicted bonds to recover as further monetary policy easing is on cards.

Eighteen of 22 analysts in a Bloomberg News survey predict the monetary authority will reduce the repurchase rate by 25 basis points to 7.25 percent at its review on May 3, with three forecasting no change and one seeing a cut to 7 percent.

The Reserve Bank of India has cut the repurchase rate by 50 basis points this year to spur growth. The nation’s gross domestic product rose 5 percent in the fiscal year ended March 31, the weakest pace since 2003, the statistics agency estimates.

Easing inflation “increases the probability of a more accommodative monetary policy,” Raghuram Rajan, the top adviser in the Finance Ministry, said in an April 16 interview.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was little changed from April 23 at 7.23 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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