India’s Sovereign Bonds Climb as Lower Oil Seen Easing Inflation

Indian bonds rose, pushing the 10-year yield to a two-week low, on optimism falling oil prices will help ease inflation and narrow the current-account deficit.

Brent crude plunged 49 percent since June and traded near a five-year low today amid speculation U.S. inventories will stay at the highest level since June, offering no relief from a global glut. Falling prices reduce costs for India as the nation imports about 80 percent of its oil. Local gasoline and diesel prices may be reduced, Bloomberg TV India reported today.

The yield on the sovereign bonds due July 2024 slid five basis points, or 0.05 percentage point, to 7.87 percent in Mumbai, prices from the Reserve Bank of India’s trading system show. That’s the lowest close since Dec. 15. The rupee rose 0.5 percent to 63.3775 a dollar, snapping a four day decline, prices from local banks compiled by Bloomberg show.

“Oil’s move continues to support the Indian bond markets,” said Anoop Verma, vice president for treasury at DCB Bank Ltd. in Mumbai. “The noise around rate cuts by the central bank is increasing.”

RBI Governor Raghuram Rajan raised the benchmark repurchase rate three times from September 2013 to January and has since kept it steady at 8 percent. India’s consumer price index rose 4.38 percent in November, the least since the gauge was created in early 2012.

The July-September shortfall in India’s broadest measure of trade widened to $10.1 billion, the largest since the quarter ended June 2013, the RBI said this month.

Forwards, Swaps

In the currency market, the rupee advanced for the first time in five days amid speculation state-run and foreign lenders sold dollars and as the greenback weakened. Three-month offshore non-deliverable forwards rose 0.4 percent to 64.46.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, dropped four basis points to 7.76 percent.

The yield on India’s benchmark 10-year bonds has slumped 95 basis points in 2014, the most since 2008. The rupee has weakened 2.5 percent this year.

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