Indian Bonds Gain as Yield at Four-Month High Attracts Investors

  • Rupee rises 0.3 percent in biggest advance since Dec. 1
  • Global funds have pared debt holdings in December, November

India’s 10-year sovereign bonds rose the most in more than a week on speculation a surge in the yield to a four-month high lured buyers.

The yield on notes due May 2025 fell three basis points to 7.79 percent in Mumbai, the biggest decline since Dec. 3, according to prices from the central bank’s trading system. It climbed to 7.82 percent on Monday, the highest close since Aug. 24, as foreign holdings of local debt continued to fall ahead of a potential increase in U.S. interest rates this week. Bonds rose even as data after the close of markets Monday showed consumer-price inflation accelerated to a 14-month high of 5.41 percent in November.

“Investors probably found yield levels above 7.80 percent attractive and that contributed to the rebound in bonds,” said Sagar Shah, vice president for treasury at RBL Bank Ltd. in Mumbai. Ten-year notes may advance “in the coming weeks” as the uncertainty related to U.S. rates subsides, he said.

Futures contracts show there’s a 78 percent chance that the Federal Reserve will raise borrowing costs at its Dec. 15-16 meeting. Foreign holdings of rupee-denominated debt have dropped 15.5 billion rupees ($232 million) this month, according to data from the National Securities Depository Ltd. That follows a decline of 46.9 billion rupees in November, which was the largest since May.

The rupee gained 0.3 percent, the most since Dec. 1, to 66.9325 a dollar, according to prices from local banks compiled by Bloomberg. The currency fell to as low as 67.1275 on Monday, its weakest level since September 2013. It has declined 0.4 percent in December after losing 2.1 percent last month in Asia’s worst performance.

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