Indian Bonds Post Weekly Drop on Outflows Before Fed Meeting

  • Foreign funds pull most money from debt in three months
  • India's currency retreats for fifth consecutive week

India’s 10-year sovereign bonds dropped in the week as overseas investors pulled the most money from the country’s debt in three months before the Federal Reserve reviews U.S. interest rates.

Foreign holdings of the notes fell 23.2 billion rupees ($350 million) in the first four days of the week, according to data from National Securities Depository Ltd. The Fed meets Sept. 16-17, with interest-rate futures showing a 26 percent chance for an increase in borrowing costs. Reserve Bank of India Governor Raghuram Rajan will review rates Sept. 29.

“Investors are lightening positions ahead of the Fed decision,” said Anand Bagri, executive vice president and head of domestic treasury at RBL Bank Ltd. in Mumbai. The long-term view on India remains positive, he said.

The yield on the bonds due May 2025 rose two basis points from Sept. 4 to 7.77 percent in Mumbai, according to prices from the central bank’s trading system. That’s the biggest weekly increase since Aug. 21. The yield was steady on Friday.

Rajan has lowered the repurchase rate by 75 basis points this year to 7.25 percent, with the latest move in June.

Investors are waiting to see how the Indian central bank will react to data due in the next week, Bagri said. Consumer-price growth is likely to have slowed to 3.58 percent in August from 3.78 percent in July, according to a Bloomberg survey before figures due Sept. 14. Industrial production unexpectedly jumped 4.2 percent in July, compared with 3.8 percent in June, data released late Friday showed. Analysts had expected a slowdown to 3.6 percent.

The rupee fell 0.1 percent this past week and 0.2 percent Friday to 66.54 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The currency retreated for the fifth straight week.

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