Bonds in India Extend World-Beating Surge After Inflation Slows

Has the Bond Rout Gone Too Far?

Indian sovereign bonds surged for a second day as slowing inflation boosted the case for authorities to lower benchmark interest rates just as a banking system awash with cash spurs demand for debt.

Consumer inflation eased to a 14-month low of 4.2 percent in October, official data showed late Tuesday. That compares with the 4.15 percent median estimate in a Bloomberg survey of economists and September’s upwardly-revised 4.39 percent increase. Prime Minister Narendra Modi’s shock withdrawal of 86 percent of India’s currency notes in circulation last week has seen banks lure 3.25 trillion rupees ($48 billion) in deposits as people across the nation rushed to submit the old bills.

The yield on government notes due September 2026 slumped 11 basis points to 6.42 percent as of 9:22 a.m. in Mumbai, according to prices from the central bank’s trading system. It plunged 19 basis points on Tuesday.

Modi’s move to stamp out black money has helped rupee sovereign bonds make a lone escape from the global rout triggered by Donald Trump’s surprise U.S. election victory. India’s 10-year yield is now down 38 basis points since Nov. 8, the only decline among similar-maturity notes in 53 countries tracked by Bloomberg.

Read: Black Money Purge Spurs World’s Only Bond Gain in Trump Rout

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