Indian sovereign bonds due in 2024 completed the biggest weekly gain since they were first issued in July as a better-than-expected start to monsoon rains eased concern that inflation will quicken.
Seasonal showers have been 10 percent above average since June 1, according to the weather bureau, defying forecasts that a developing El Nino would curb rainfall and hurt crops, potentially boosting food costs. The department has predicted June-September rainfall to be 88 percent of a 50-year average. Bonds also gained as the Federal Reserve signaled it will raise interest rates gradually, paring chances of sudden outflows from emerging markets. The rupee rose this week.
“Good monsoon rains have aided sentiment,” said N.S. Venkatesh, chief financial officer at IDBI Bank Ltd. in Mumbai. “The Fed’s outlook on rates has comforted investors and that’s reflected in bonds.”
The yield on the notes due July 2024 slid 23 basis points from June 12 to 7.88 percent in Mumbai, prices from the central bank’s trading system show. The yield on the bonds due in May 2025, the new 10-year security issued last month, fell 18 basis points this week.
The yield on the 2024 bonds fell seven basis points Friday on speculation the government may make some adjustments to debt limits set for foreign institutional investors, said Gopikrishnan MS, head of foreign exchange, rates and credit for South Asia at Standard Chartered Plc in Mumbai.
Fed Chair Janet Yellen this week signaled that an improvement in the U.S. economy is keeping it on track to lift borrowing costs this year, though subsequent increases are likely to be more gradual than anticipated earlier.
The rupee gained 0.8 percent from June 12 to 63.5650 a dollar, the biggest weekly gain since the period ended March 20, according to prices from local banks compiled by Bloomberg. It rose 0.3 percent Friday.
The yield on the 2024 bonds had jumped 29 basis points in the previous two weeks on concern inflation will accelerate, preventing the central bank from easing monetary policy further. Reserve Bank of India Governor Raghuram Rajan, who cut the repurchase rate on June 2 in this year’s third reduction, linked future actions to the strength of the monsoons.
India’s government sold 150 billion rupees ($2.4 billion) of notes at an auction Friday, including 30 billion rupees of new 30-year debt, according to an RBI statement.