India’s 10-Year Bonds Complete Weekly Loss Before Interim Budget

India’s 10-year bonds completed their worst weekly performance in a month on speculation the government will announce more spending next week that may entail an increase in the supply of new debt.

Prime Minister Manmohan Singh’s administration will present an interim budget on Feb. 17 to cover spending until its term ends in May. The full-fledged budget will be presented by the government that’s formed after the elections. Markets “will closely watch the fiscal deficit target for the year starting in April, which will determine the size of market borrowing,” Standard Chartered Plc analysts Anubhuti Sahay and Nagaraj Kulkarni in Mumbai wrote in a note dated Feb. 12.

The yield on the 8.83 percent sovereign notes due November 2023 climbed seven basis points, or 0.07 percentage point, this week to 8.81 percent in Mumbai, according to the central bank’s trading system. The rate fell six basis points today after a report showed wholesale price-gains slowed in January.

“Beyond inflation, the focus shifts to the tabling of the vote-on-account budget,” Radhika Rao, a Singapore-based economist at DBS Bank Ltd., wrote in a research note.

Gains in wholesale prices slowed to 5.05 percent compared with a 5.6 percent prediction and a 6.16 percent increase in December. The consumer price index rose 8.79 percent from a year earlier, the least in two years, and less than December’s 9.87 percent increase. The median estimate in a Bloomberg News survey was for a 9.2 percent advance.

Borrowing Target

There is “nervousness” over the extent of borrowing that may be announced, said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai.

Reserve Bank of India Governor Raghuram Rajan raised the benchmark repurchase rate to 8 percent from 7.75 percent on Jan. 28 and said in the policy statement that more increases are unlikely in the “near term” should inflation cool as expected.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, gained six basis points this week to 8.72 percent, data compiled by Bloomberg show. They fell two basis points today.

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