India 10-Year Bond Yield Rises Most in March on Industrial Data

The yield on India’s 10-year government bonds rose the most this month as industrial output beat estimates, spurring speculation the central bank will refrain from cutting interest rates next week.

Production at factories, utilities and mines climbed 2.4 percent in January from a year earlier after a revised 0.5 percent drop in December, an official report showed today. The median of 28 estimates in a Bloomberg News survey was for a 1.3 percent increase. The Reserve Bank of India, which last cut the repurchase rate by 25 basis points to 7.75 percent in January, will review its policy on March 19.

“Since the output was more than expected, there is a question mark on whether there will be a rate cut this time,” said Anoop Verma, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “That has driven up the yields.”

The yield on the 8.15 percent notes maturing in June 2022 rose five basis points, or 0.05 percentage point, to 7.89 percent in Mumbai, according to the central bank’s trading system. That’s the biggest increase since Feb. 28.

Verma predicted the benchmark bond yield will rise above 8 percent unless interest rates are cut, noting the government plans record debt sales in the fiscal year starting April 1.

Finance Minister Palaniappan Chidambaram said last week he’s optimistic borrowing costs will be lowered after data on Feb. 28 showed Asia’s third-largest economy grew 4.5 percent from a year earlier in the final three months of 2012, the least in almost four years.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose three basis points to 7.60 percent, according to data compiled by Bloomberg.

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