India Bonds Rise With Rupee as U.S. Data Clouds Fed Rate Outlook

Indian bonds rose with the rupee, pushing the 10-year yield to the lowest since July 2013, as a drop in U.S. wages spurred speculation the Federal Reserve will delay an increase in interest rates.

Average hourly earnings of U.S. workers fell 0.2 percent in December, the biggest decrease since records began in 2006. Chair Janet Yellen signaled last month that the central bank is on track to increase rates as the world’s largest economy improves.

“Any bad U.S. data reading has an impact on the market’s expectations of a Fed rate hike,” said N.S. Venkatesh, the Mumbai-based head of treasury at IDBI Bank Ltd. “Indian assets are rallying also amid hopes of a reduction in domestic interest rates as inflation stays under control.”

The yield on Indian sovereign bonds due July 2024 declined three basis points, or 0.03 percentage point, to close at 7.81 percent in Mumbai, prices from the Reserve Bank of India’s trading system show. That’s the lowest level for the benchmark 10-year debt since July 2013.

The rupee advanced 0.3 percent to 62.1350 a dollar in Mumbai, prices from local banks compiled by Bloomberg show. The currency, which climbed for a fourth day, touched 62.0950 earlier, the strongest level since Dec. 10.

RBI Policy

A report today may show consumer prices rose 5.35 percent in December from a year earlier, according to a Bloomberg News survey. While that will be higher than the 4.38 percent gain in November, it’s still below the central bank’s 6 percent inflation target for January 2016.

RBI Governor Raghuram Rajan raised the benchmark repurchase rate three times from September 2013 to January 2014 and has since kept it steady at 8 percent. One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell for a fourth day, retreating three basis points to 7.65 percent, data compiled by Bloomberg show.

Three-month offshore non-deliverable forwards for the rupee fell 0.1 percent to 63.18 a dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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