India 10-Year Bonds Gain After This Year’s Biggest Monthly Loss

India’s sovereign bonds due in a decade rose after their biggest monthly decline this year on speculation higher yields attracted investors.

“The current rise in yields is a dip that investors can use to express a bullish view on India rates,” Nomura Holdings Inc. analysts including Singapore-based Vivek Rajpal wrote in a research note received by e-mail today. “We continue to like the three-to-seven year part of the bond curve.”

The rate on the 8.83 percent notes due November 2023 fell one basis basis point, or 0.01 percentage point, to 8.74 percent in Mumbai, according to the central bank’s trading system. The rate climbed 10 basis points last month.

Ten-year government notes have come under pressure on concern insufficient rainfall and a rally in global oil prices will spur inflation, reducing the central bank’s scope to ease monetary policy. A weak start to the June-September monsoon season, which accounts for more than 70 percent of the nation’s annual rains, is delaying planting of crops from rice to soybeans, threatening to push up food prices that make up about half of India’s consumer-inflation basket.

Brent crude rose 2.7 percent last month on speculation escalating violence in Iraq will disrupt supplies. India imports about 80 percent of its fuel.

Wholesale-price inflation quickened to 6.01 percent in May from a year earlier, the fastest since December, official data show. Consumer prices increased 8.28 percent, the slowest pace in three months. Reserve Bank of India Governor Raghuram Rajan has raised the benchmark repurchase rate by 75 basis points to 8 percent since taking charge in September.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell one basis point to 8.36 percent, data compiled by Bloomberg show.

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

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net Andrew Janes, Karthikeyan Sundaram

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