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India’s 10-Year Bond Yield at Lowest Since October on Inflation

India’s 10-year bond yield declined to the lowest level since October after inflation eased and the government deferred a sale of notes.

Consumer price gains slowed to a three-month low of 9.87 percent in December, official data showed Jan. 13 after markets closed. There was no trading yesterday because of a public holiday. The Reserve Bank of India left the repurchase rate at 7.75 percent on Dec. 18. Wholesale-price inflation probably eased to 6.99 percent last month, a Bloomberg survey shows before data due later today.

The yield on the 8.83 percent sovereign notes maturing in November 2023 fell four basis points, or 0.04 percentage point, to 8.67 percent as of 10 a.m. in Mumbai, according to the central bank’s trading system. That’s the lowest level for benchmark 10-year debt since Oct. 31.

“The inflation numbers and the auction news are adding to the rally,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “Investors now increasingly believe the RBI won’t increase interest rates.”

RBI Governor Raghuram Rajan has raised the repo rate twice since taking office in September to counter price pressures. The decision to hold rates on Dec. 18 was “a close one,” the RBI said in its policy statement. The move came after official data showed wholesale prices rose 7.52 percent in November from a year earlier, the fastest in 14 months, and CPI surged a revised 11.16 percent, the most in data compiled by Bloomberg going back to January 2012. The central bank’s next rate review is on Jan. 28.

India deferred the 150 billion rupee ($2.44 billion) bond sale that was scheduled for Jan. 17, citing the government’s cash position and funding requirements, the RBI said Jan. 13.

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.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell two basis points to 8.32 percent, a six-month low, 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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