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India’s 10-Year Bonds Snap 3-Day Loss on U.S. Debt-Ceiling Deal

India’s 10-year bonds rose for the first time in four days as U.S. politicians voted to increase the debt limit and end a government shutdown, improving the outlook for emerging markets.

President Barack Obama signed into law an agreement that ends the 16-day impasse and extends the borrowing authority to early next year. Focus may now return to the Federal Reserve as to when it will start to pare its $85 billion of monthly bond purchases that have spurred demand for higher-yielding assets. The U.S. central bank unexpectedly refrained from cutting stimulus last month.

“While global risk appetite may see a snap back in the short term, it will be key to see if it can be sustained given that the deal is essentially kicking the can down the road to early 2014,” Selena Ling, a Singapore-based economist at Oversea-Chinese Banking Corp., wrote in a research note today. “A December taper still looks unlikely for now given the paucity of clear economic data and lingering uncertainty on the medium-term fiscal resolution.”

The yield on the 7.16 percent government notes due May 2023 fell five basis points, or 0.05 percentage point, to 8.61 percent as of 10:21 a.m. in Mumbai, according to prices from the central bank’s trading system. Indian markets were closed yesterday for a public holiday.

India’s sovereign bonds dropped in the three days through Oct. 15 as accelerating inflation raised concern the central bank will increase interest rates.

The wholesale-price index, the benchmark inflation gauge, rose to a seven-month high of 6.46 percent in September, official data showed on Oct. 14. Consumer prices climbed 9.84 percent, exceeding the 9.5 percent median estimate in a Bloomberg survey of economists.

Reserve Bank of India Governor Raghuram Rajan boosted the repurchase rate by 25 basis points to 7.5 percent last month, the first increase since 2011. The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points to 8.48 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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