India’s 2022 Bond Yield Drops to Two-Week Low as Rupee Rebounds

Indian bonds due 2022 climbed for a third day, pushing the yield to the lowest level in almost two weeks, as a rebound in the rupee tempered concern inflation will accelerate.

The rupee has climbed 2.5 percent from an all-time low of 60.765 per dollar reached on June 26. A weaker local currency boosts the cost of imported goods, fueling consumer-price increases. International investors pulled more than $5 billion from local debt in June, exchange data show, as the rupee lost 4.9 percent in the biggest decline since May 2012.

“The currency’s rebound has definitely helped the sentiment,” said N.S. Venkatesh, the Mumbai-based head of treasury at state-run IDBI Bank Ltd. (IDBI) “There seems to be some demand for bonds at the beginning of the new quarter.”

The yield on 8.15 percent notes due June 2022 slid five basis points, or 0.05 percentage point, to 7.58 percent at 10:38 a.m. in Mumbai, according to the central bank’s trading system. That’s the lowest level since June 19. The rate climbed 18 basis points last month, the most since the securities were issued in June 2012.

The rupee fell 8.6 percent last quarter, the most since 2011, as U.S. policy makers signaled they may rein in stimulus measures, which have boosted dollar supply, should the U.S. economy perform in line with central bank estimates.

Reserve Bank of India Governor Duvvuri Subbarao kept the repurchase rate steady at 7.25 percent on June 17, citing inflation risks, even after wholesale prices rose the least since 2009 in May. India’s monetary-policy stance will be determined by the evolution of economic growth, inflation and the balance of payments in the months ahead, the central bank said in its statement on the same day.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points to 7.47 percent, data compiled by Bloomberg show.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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