India’s 10-Year Bonds Complete Monthly Decline on Weak Monsoon

India’s 10-year sovereign bonds dropped this month, pushing the yield up the most since November, on concern insufficient rainfall will hurt farm output and spur inflation.

The monsoon, which accounts for more than 70 percent of annual rains, has been 43 percent lower than the 50-year average since June 1, according to the weather department. The weak start to the June-September season is delaying planting of crops from rice to soybeans, threatening to push up food prices that make up about half of India’s consumer-inflation basket.

The yield on the 8.83 percent notes due November 2023 rose nine basis points, or 0.09 percentage point, to 8.74 percent this month in Mumbai, according to the central bank’s trading system. That’s the biggest monthly increase for a benchmark 10-year bond since November. The yield fell one basis point today.

“The poor start to the monsoons, coupled with concern over the rise in oil prices, has impacted bond-market sentiment,” said Harish Agarwal, a fixed-income trader in Mumbai at FirstRand Ltd. “Ten-year bonds fell this month also because investors squared positions amid expectations of new 10-year paper being issued soon.”

Brent crude rose about 3 percent in June on speculation escalating violence in Iraq will disrupt supplies. India imports about 80 percent of its fuel. Primary dealers last week bought unsold sovereign debt at an auction for the first time in 2014, fueling speculation investors sought higher yields.

Swaps Steady

Wholesale-price inflation in India quickened to 6.01 percent in May from a year earlier, the fastest since December. Consumer prices increased 8.28 percent, the slowest pace in three months.

Reserve Bank of India Governor Raghuram Rajan has raised the benchmark repurchase rate by 75 basis points since taking charge in September to rein in consumer-price gains. He left the rate unchanged at 8 percent for a second straight meeting on June 3.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell one basis point to 8.37 percent today in Mumbai, data compiled by Bloomberg show.

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