Indian Bond Volatility Near One-Month High on Inflation Concern

A gauge of expected swings in India’s sovereign bonds was near a one-month high on speculation quickening inflation will challenge central bank Governor Raghuram Rajan’s accommodative monetary policy stance.

A measure of ten-day historical volatility for the notes due May 2025 was at 2.94 percent on Monday, close to Friday’s 2.96 percent, which was the highest since Oct. 13, according to data compiled by Bloomberg. The yield on the securities was little changed at 7.65 percent in Mumbai, prices from the central bank’s trading system show.

Consumer prices -- the central bank’s benchmark -- rose 5 percent in October from a year earlier after a 4.41 percent increase in September, according to government data last week. Wholesale prices showed an easing pace of deflation with the index shrinking 3.81 percent in October, after a 4.54 percent contraction a month earlier, the Commerce Ministry said in a statement on Monday. Rajan has reduced rates four times so far this year and will next review his policy on Dec. 1.

“Higher food prices are adding to the uptick in consumer price inflation,” said Soumyajit Niyogi, an interest-rate strategist at SBI DFHI in Mumbai. “We have to be watchful. If higher food prices persist longer, it may add to the negative sentiment.”

The rupee rose for a third day. It strengthened 0.2 percent to 65.9950 against the dollar, tracking gains in stocks, prices from local banks compiled by Bloomberg show. It earlier fell to as low as 66.26, in line with other major Asian currencies after the Paris terror attacks prompted investors to seek safer assets. The S&P BSE Sensex added 0.6 percent.

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