India’s 10-Year Bonds Drop as Falling Yield Deters Investors

Indian government bonds fell for a second day on speculation a decline in the yield on notes due 2022 to a three-year low this week is deterring buyers.

The yield has dropped 37 basis points this month as the central bank cut the repurchase rate for a third time in 2013 and inflation eased to a 41-month low. The current-account deficit widened to a record of around 5 percent of gross domestic product in the year through March 2013, the government estimates.

“Investors are probably unwinding their long positions now after overreacting to the wholesale price data,” said J. Moses Harding, executive vice president at IndusInd Bank Ltd. (IIB) in Mumbai. “There are still a lot of headwinds at play.”

The yield on the 8.15 percent bonds June 2022 rose one basis point, or 0.01 percentage point, to 7.36 percent in Mumbai. The rate reached 7.34 percent on May 20, the lowest for a benchmark 10-year note since November 2009.

The wholesale-price index climbed 4.89 percent in April from a year earlier, the least since November 2009, official data showed last week. The Reserve Bank of India, which lowered its repurchase rate by 25 basis points to 7.25 percent on May 3, will next review monetary policy on June 17.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose three basis points to 7.11 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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