India Bonds Snap Three-Day Loss as Rupee Halts Slide, Oil Drops

India’s 10-year government bonds rose for the first time in four days as gains in the rupee and a decline in oil prices eased some concern over inflation.

Brent crude fell for a second day on signs violence in Iraq may not affect supply, while the Indian rupee gained 0.2 percent after losing 1.5 percent in the last two days. A weaker currency stokes inflation as India imports about 80 percent of its oil. Ten-year yields climbed 11 basis points in three days to reach a two-week high yesterday after official data showed wholesale prices increased 6.01 percent in May from a year earlier, the fastest pace since December.

“We’ve seen a good amount of bearishness in the market,” Harish Agarwal, a fixed-income trader in Mumbai at FirstRand Ltd., said by phone. “The declines led to some value buying in bonds today, which was aided by the rupee and oil moves.”

The yield on the 8.83 percent government bonds due November 2023 fell five basis points, or 0.05 percentage point, to 8.60 percent today, prices from the Reserve Bank of India’s trading system show.

The RBI and the government have to be vigilant on inflation, Governor Raghuram Rajan said in Mumbai today. He’s raised the benchmark repurchase rate by 75 basis points since taking charge in September to rein in prices and left the rate unchanged at 8 percent for a second straight meeting on June 3.

India’s higher-than-expected WPI print will raise worries about the trajectory of CPI inflation, Anubhuti Sahay, an economist at Standard Chartered Plc, said yesterday. Consumer prices rose 8.28 percent in May, compared with 8.59 percent in April. The RBI is targeting a rate of 8 percent by January 2015 and 6 percent a year later.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell two basis points from a two-week high to 8.29 percent, data compiled by Bloomberg show.

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