India’s Bond Yield at Lowest Since October as Inflation Cools

India’s 10-year bonds gained, pushing the yield to the lowest level since October, as data showed inflation slowed more than economists estimated.

Wholesale prices rose 6.16 percent in December from a year earlier, the government reported, compared with the median forecast of 6.99 percent in a Bloomberg survey and a gain of 7.52 percent in November. Benchmark bonds due 2023 rallied the most this month after the finance ministry deferred a debt auction that was scheduled for Jan. 17, boosting optimism demand for existing notes will rise as supply declines.

The yield on the 8.83 percent sovereign securities maturing in November 2023 fell seven basis points, or 0.07 percentage point, to 8.64 percent in Mumbai, according to the central bank’s trading system. That’s the lowest level for benchmark 10-year debt since Oct. 31.

“The inflation number is much better than expected and that, along with the auction news, is adding to the rally,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “Investors now increasingly believe the RBI won’t increase interest rates.”

Reserve Bank of India Governor Raghuram Rajan, who raised borrowing costs twice since mid-September to counter price pressures, left the repurchase rate at 7.75 percent at the last review on Dec. 18, citing the need for more data. Policy makers will next meet on Jan. 28.

Consumer-price gains slowed to a three-month low of 9.87 percent in December, official data showed Jan. 13 after markets closed. There was no trading in India’s bond and currency markets yesterday because of a public holiday.

Auction Deferred

India has postponed this week’s 150 billion rupee ($2.4 billion) bond sale in line with the government’s cash position and funding requirements, the RBI said Jan. 13. The decision signals there’s a slowdown in federal spending, which has reduced the need for the finance ministry to borrow now, according to Mumbai-based Kotak Mahindra Bank Ltd.

Overseas investors made their biggest daily purchases of Indian debt in almost three years on Jan. 13, buying a net $860 million of rupee-denominated securities, exchange data show.

Bonds due in a decade had their biggest annual loss since 2009 last year, with yields rising 78 basis points, as overseas funds cut holdings of local notes by about $8 billion before the U.S. plan to taper monetary stimulus.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell four basis points to 8.30 percent, a six-month low, data compiled by Bloomberg show.

Before it's here, it's on the Bloomberg Terminal.