India’s Bonds Drop as Yields Near 30-Month Low Deter Investors

India’s sovereign bonds fell as yields near a 30-month low deterred buyers.

The benchmark 10-year rate touched 7.80 percent this week, the least since July 2010, on optimism the central bank will start reducing interest rates to revive growth after data on Jan. 14 showed inflation eased to a three-year low. Eleven of 14 analysts in a Bloomberg News survey predict a 25-basis-point cut in the repurchase rate at a Jan. 29 review, while two expect a half-percentage point reduction.

“Given rate cut expectations, the bias is for softening of yields but there was some profit taking by investors ahead of the weekend,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd.

The yield on the 8.15 percent bonds due June 2022 rose three basis points, or 0.03 percentage point, to 7.86 percent in Mumbai, according to the central bank’s trading system. The rate was little changed this week.

The Reserve Bank of India last lowered the repurchase rate by 50 basis points to 8 percent in April. The wholesale-price index rose 7.18 percent in December from a year earlier, the least since 2009, government data showed this week.

The benchmark yield touched 7.81 percent earlier today as measures unveiled to curb subsidies spurred buying of bonds, said Venkatesh.

The government allowed state-owned refiners to raise prices of diesel over a period of time, Oil Secretary G.C. Chaturvedi said in New Delhi yesterday. Finance Minister Palaniappan Chidambaram is seeking to cut fuel subsidies as part of a plan to narrow the budget deficit to 5.3 percent of gross domestic product and avert a sovereign rating downgrade.

The one-year swap, a derivative contract used to guard against fluctuations in funding costs, was little changed at 7.57 percent in Mumbai, data compiled by Bloomberg show. It rose three basis points this week.

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