India’s 10-year government bonds added to last week’s losses on speculation the central bank will raise interest rates this month to curb inflation.
Wholesale prices climbed 6.46 percent from a year earlier in September, the most in seven months, official data showed Oct. 14. Reserve Bank of India Governor Raghuram Rajan, who boosted the repurchase rate by 25 basis points to 7.5 percent last month in the first increase since 2011, will review borrowing costs on Oct. 29. Increased price pressures will prompt the RBI to raise the benchmark rate by 50 basis points that day, Deutsche Bank AG said in an Oct. 16 report.
The yield on the 7.16 percent debt due May 2023 rose five basis points, or 0.05 percentage point, to 8.60 percent in Mumbai, according to prices from the central bank’s trading system. It climbed six basis points last week.
“Markets are pricing in higher rates,” said Sagar Shah, associate vice president for treasury at Ratnakar Bank Ltd. in Mumbai. “Still, bond trading will be range-bound as investors await cues from the monetary policy announcement.”
Ten-year notes fell in each of the last four months, the longest run of losses since 2009, as the RBI raised rates and curbed funding support to banks to stem a slide in the rupee. The currency has rebounded to 61.5212 per dollar from a record low of 68.845 on Aug. 28, allowing the central bank to scale back some of the measures. Rajan twice cut two rates at which the RBI supplies cash to lenders in the past month.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point to 8.44 percent, data compiled by Bloomberg show.