India 10-Year Bonds Gain as Inflation Concern Eases on Oil Drop

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India’s sovereign bonds rose, pushing the 10-year yield to a one-week low, as improved rainfall and a drop in oil prices eased concern that inflation will accelerate.

The deficit in monsoon showers has narrowed to 7 percent below average, according to the weather bureau, boosting the outlook for farm output. The shortfall for this month had widened to as much as 33 percent in the first fortnight. Brent crude has declined 11 percent in July, paring costs for a nation that imports more than 75 percent of its oil.

The yield on notes due May 2025 fell one basis point to 7.83 percent in Mumbai on Wednesday, as per the Reserve Bank of India’s trading system. That’s the lowest level since July 14. The rupee was at 63.58 a dollar, little changed from Tuesday, according to prices from local banks compiled by Bloomberg.

“Rainfall distribution in most parts of the country is either normal or above average,” said Soumyajit Niyogi, an interest-rate analyst at primary dealer SBI DFHI Ltd. in Mumbai. “Lower oil prices are also constructive for bond markets.”

July accounts for about 33 percent of precipitation during the June-September rainy season and is critical for crops. Monsoon irrigates more than half of country’s farmland and a shortfall can increase food prices, which account for almost 50 percent of the consumer price index.

India’s June trade deficit narrowed to $10.8 billion from $11.8 billion a year earlier as the value of oil imports plunged 35 percent, official data showed.

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