India’s 10-Year Bond Yield Drops to Two-Week Low as Oil Retreats

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Indian sovereign bonds advanced, pushing the 10-year yield to a two-week low, as falling oil prices eased concern that inflation will quicken.

Brent crude slumped 1.6 percent on Wednesday and has retreated 12 percent in July as an unexpected increase in U.S. stockpiles exacerbated a glut. India, where consumer-price gains accelerated to a nine-month high of 5.40 percent in June, imports about three quarters of its oil. Local bonds also rose as a pick-up in monsoon rains spurred optimism that food costs will remain in check.

The yield on the notes due May 2025 fell three basis points to 7.80 percent in Mumbai, according to prices from the Reserve Bank of India’s trading system. That’s the lowest close since July 10.

“The slump in oil prices is the immediate trigger,” said Harish Agarwal, a Mumbai-based fixed-income trader at the local unit of South African lender FirstRand Ltd. The 10-year yield could drop as low as 7.65 percent by year-end, he predicts.

The central bank, which has cut benchmark interest rates three times this year, has an inflation target of 6 percent by January. The RBI and the government will decide inflation target every three years, the finance ministry said in the draft Indian Financial Code Thursday, adding the RBI Chairperson will have the tie-breaking vote on interest rates.

The rupee weakened 0.3 percent to 63.7675 a dollar, according to prices from local banks compiled by Bloomberg.

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