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Rising inflation makes bonds lose steam

Rising inflation makes bonds lose steam
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First Published: Tue, Feb 13 2007. 01 35 AM IST
Indian bonds fell for the sixth day, their worst losing streak in more than six months, on concern that accelerating inflation will prompt the central bank to raise interest rates or reserve requirements for lenders.
Yields on benchmark 10-year notes reached the highest in two weeks after a report on 9 February showed wholesale prices rose at the fastest pace in more than two years in the week ended 27 January.
The central bank on 31 January raised its overnight lending rate for the fifth time in a year to a four-year high of 7.5% to curb inflation.
“The possibility of the Reserve Bank resorting to more monetary action to contain inflation remains the chief negative for bonds,” said Arun Kaul, treasurer at state-owned Punjab National Bank in New Delhi.
The yield on the benchmark 8.07% note due January 2017 rose 2 basis points, or 0.02 percentage point, to 7.83% as of the 5.30pm close, according to the central bank’s trading system.
The price, which moves inversely to the yield, fell 20paise per Rs100 face value, to Rs101.6.
The inflation rate climbed in January to 6.58%, the highest since December 2004, as the nation’seconomic growth, the second-fastest among major economies, has stokedprice increases for agricultural and manufactured products.
The government has forecast the economy to expand as much as 9.2% in the fiscal year through 31 March.
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First Published: Tue, Feb 13 2007. 01 35 AM IST
More Topics: Money Matters | Bonds |