The yield on India’s 10-year bonds climbed the most in seven weeks as investors shunned emerging-market assets amid concern Greece will default.
India’s government failed to meet its target at Friday’s sovereign-debt auction on speculation investors demanded higher yields amid fears the crisis in Greece poses a contagion risk for developing markets. The European nation imposed capital controls and shut banks to avert the collapse of its financial system, a measure that will deepen recession and risk driving it toward an exit from the euro. The rupee dropped the most in three weeks.
“There’s risk-off sentiment for emerging-market assets,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. “We expect the government and the Reserve Bank of India to take action to see that local yields don’t rise too much in this global turmoil.”
The yield on sovereign bonds due May 2025 jumped seven basis points to 7.89 percent in Mumbai, according to prices from the central bank’s trading system. That’s the biggest increase for benchmark 10-year debt since May 7, data compiled by Bloomberg show. The rupee weakened 0.3 percent to 63.8550 a dollar, the most since June 8, according to prices from local banks compiled by Bloomberg.
Fears that inadequate rains in India will stoke inflation, coupled with the deadlock over Greece, have caused 10-year yields to climb 25 basis points in June, the most since August 2013. The government sold 60 billion rupees ($939 million) of notes on Friday, compared with a target of 150 billion rupees, a statement from the RBI, which manages the administration’s borrowing program, showed.