India’s 10-Year Bonds Post Second Weekly Gain on Rate Outlook

India’s 10-year bonds completed a second week of gains, the longest winning streak since October, amid speculation cooling inflation will prompt the central bank to hold interest rates at a policy review this month.

Reserve Bank of India Governor Raghuram Rajan, who left the repurchase rate at 7.75 percent on Dec. 18, will do so again on Jan. 28, according to Kotak Mahindra Bank Ltd. Rajan said last month the RBI is awaiting more data after wholesale prices rose 7.52 percent in November, the fastest since September 2012, and consumer prices surged 11.24 percent, the most in data compiled by Bloomberg going back to January 2012.

The yield on the 8.83 percent sovereign notes due November 2023 dropped eight basis points, or 0.08 percentage point, since Jan. 3 to 8.76 percent in Mumbai, according to prices from the central bank’s trading system. The rate, which slid 13 basis points last week, fell three basis points today.

“We expect December consumer-price inflation at 10.2 percent and WPI inflation at 7.0 percent,” Kotak economists led by Indranil Pan in Mumbai wrote in a note today. “The extent of softening in headline inflations on both the CPI and WPI should satisfy the RBI.”

India will release consumer inflation data for December on Jan. 13 while WPI figures will be announced Jan. 15. Rajan has raised interest rates twice since taking office in September to counter price pressures. The decision to hold rates was “a close one,” the RBI said in its policy statement on Dec. 18.

Official data today showed India’s exports grew in December while imports fell. The government sold 150 billion rupees ($2.4 billion) of debt as planned at an auction today, the central bank said in a statement.

Bonds due in a decade capped their biggest annual loss since 2009 on Dec. 31, with yields rising 78 basis points, as overseas funds cut holdings of local notes by about $8 billion in 2013 before the U.S. plan to taper monetary stimulus. The two-week winning streak is the longest for benchmark 10-year debt since Oct. 11, data compiled by Bloomberg show.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell five basis points this week and today to 8.39 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: Amit Prakash at aprakash1@bloomberg.net

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