Indian 10-year sovereign bonds fell for the first time this week on speculation a rebound in oil prices will add to inflation and limit the central bank’s scope to cut interest rates.
Brent crude rallied Thursday, taking its advance this month to almost 13 percent, amid speculation a slowdown in the U.S. shale boom will ease the biggest supply glut since 1930. Official data this week showed India’s consumer inflation unexpectedly slowed. Bonds declined also as demand for existing securities weakened ahead of Friday’s weekly auction of 160 billion rupees ($2.6 billion) of government debt, according to Edelweiss Financial Services Ltd.
The yield on the 8.4 percent notes due July 2024 rose two basis points, or 0.02 percentage point, to 7.80 percent in Mumbai, according to prices from the central bank’s trading system. In the currency market, the rupee rose 0.1 percent to 62.3050 a dollar.
“Bonds are mainly tracking the jump in oil,” said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai. “If prices continue to surge, it could unravel the progress made on the inflation front and raise some uncertainty about the path of interest-rate cuts.”
Reserve Bank of India Governor Raghuram Rajan refrained from lowering the benchmark repurchase rate at a policy review last week after reducing it in unscheduled moves in January and March to 7.5 percent.