Indian sovereign bonds dropped and the rupee weakened amid a global selloff in debt as an economic recovery in the U.S. and Europe strengthens.
Yields on the local notes due in 2024 climbed to a six-month high, tracking moves from Germany to Japan, after European Central Bank President Mario Draghi said investors should get used to the heightened volatility they’ve seen in recent weeks. Concern that potentially deficient monsoon rains will push up inflation also hurt Indian bonds.
“The selloff that we are seeing globally is rubbing on the Indian market,” said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai. “Locally, investors are also worried about poor rains leading to high inflation and curtailing the RBI’s room to cut rates.”
The yield on the debt due July 2024, the current 10-year benchmark, climbed six basis points, or 0.06 percentage point, to 8.01 percent in Mumbai, prices from the central bank’s trading system show. That’s the highest close since December 1, 2014. The yield on the notes due May 2025, the new 10-year security issued last month, rose six basis points to 7.80 percent.
Reserve Bank of India Governor Raghuram Rajan cut the benchmark repurchase rate for a third time this year on June 2 and said he’d wait to assess the monsoon before acting again. The government lowered its forecast for the June-September wet season that day, saying rainfall may be 88 percent of a 50-year average of 89 centimeters (35 inches), compared with an April estimate of 93 percent.
The rupee weakened for a third day, falling 0.2 percent to 64.0050 a dollar, according to prices from local banks compiled by Bloomberg.
Governor Rajan, in an interview with Mint newspaper published Thursday, said he’s “not unhappy with where the rupee is.”