The Calm Before the Monsoon Sends India Bond Swings to 2013 Lows

  • Inflation rebounded in April from a six-month low in March
  • Bond market will be “closely watching” the rains: Edelweiss

Bond swings in India have narrowed to the lowest since 2013 as investors await the arrival of monsoon rains that are crucial to the nation’s inflation and interest-rate outlook.

The average daily volume in the government securities market dropped to 359.9 billion rupees ($5.4 billion) this month, almost half of that seen in the first 25 days of April, Clearing Corp. of India Ltd. data show. The prediction for above normal seasonal rainfall for the first time since 2013 is seen boosting prospects of agricultural production, which can help contain food costs that contributed to faster inflation in April.

A gauge of 30-day historical volatility on sovereign bonds due in a decade sank to 3.91 percent in Mumbai, the lowest close since January 2013, data compiled by Bloomberg show. The yield on notes due January 2026, the current 10-year benchmark, rose one basis point to 7.47 percent, according to prices from the central bank’s trading system. Its closing levels have ranged between 7.42 percent and 7.48 percent this month.

“The bond market will be closely watching how the rainy season pans out,” said Bhupesh Bameta, head of research for currencies and rates at Edelweiss Financial Services Ltd. in Mumbai. “The rains are very crucial as a third back-to-back year of poor monsoon rains will be very damaging for the economy.”

Faster Inflation

Consumer prices in India rose 5.39 percent in April from a year ago, exceeding the median forecast for a 5.05-percent increase in a Bloomberg survey. The consumer food price index climbed 6.32 percent, after a 5.21 gain in March, led by a 34 percent surge in prices of pulses. Central bank Governor Raghuram Rajan wants to limit price gains to 5 percent by March 2017.

The June-September monsoon affects both summer and winter crop sowing in India and waters more than half of all farmland. The lowest rainfall since 2009 hurt rice, corn, sugar-cane and oilseed crops last year. Seasonal showers this year will be the strongest since 1994, Skymet Weather Services Pvt., a New Delhi-based private forecaster, said on its website on Tuesday.

“The Reserve Bank of India would like to assess the impact of the monsoon rainfall before taking any decision on rates,” said R. Sivakumar, Mumbai-based head of fixed income at Axis Asset Management Co., which oversees about 378 billion rupees. The RBI has cut benchmark interest rates five times since early 2015.

The rupee rose 0.2 percent to 67.1775 a dollar, prices from local banks compiled by Bloomberg show. It climbed 0.6 percent on Wednesday, the most since March 17, breaking a nine-day losing streak that was its longest since 2007. The currency has weakened 1.5 percent this year in Asia’s worst performance.

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