India 2023 Bonds Drop as Yields at Eight-Month Low Deter Buyers

India’s government bonds due 2023 ended a four-day rally on speculation yields at an eight-month low deterred buyers.

The notes rallied last week, with the yield slumping 13 basis points to 8.51 percent, after the central bank said it could ease monetary policy should inflation slow more than anticipated. The Reserve Bank of India aims to curb consumer-price gains, which were 8.59 percent in April, to 8 percent by January 2015 and 6 percent a year later.

The yield on the 8.83 percent notes due November 2023 rose four basis points, or 0.04 percentage point, to 8.55 percent in Mumbai, according to prices from the RBI’s trading system.

“Some profit-booking was expected after the rally plus there is speculation that the government will soon announce a new 10-year bond, which is impacting demand for the current one,” said C. Nageswara Rao, manager for treasury and funds management at Karur Vysya Bank in Karur in southern Tamil Nadu state. “We expect the 2023 bonds to trade between 8.50 percent and 8.60 percent before the inflation data.”

India will release data on consumer prices for May on June 12 and wholesale-price inflation figures on June 16. Governor Raghuram Rajan, who has raised the benchmark repurchase rate by 75 basis points since taking charge in September to rein in prices, left it unchanged at 8 percent for a second straight meeting on June 3.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, jumped six basis points, the most since April 2, to 8.22 percent, data compiled by Bloomberg show. They slumped 22 basis points last week to the lowest level since July 2013.

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

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Andrew Janes, Ravil Shirodkar

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