Mumbai: India’s 10-year bonds fell for a sixth day, pushing yields to the highest since 2001, on concern accelerating inflation will erode returns from thesecurities.
The rupee also fell on speculation refiners took advantage of the currency’s advance to an almost one-week high earlier to buy dollars needed for oil imports.
Benchmark notes added to the 2.2% loss on 4 July, the most in at least eight years, after a government report the same day showed inflation quickened to 11.63% in the second week of June, the fastest since 1995. Bonds also fell on speculation the central bank will add to last month’s two interest-rate increases to temper price gains.
“There’s still pain for bond investors because inflation just isn’t cooling down and the Reserve Bank of India (RBI) is expected to take further monetary action at the policy review later this month,” said Baljinder Singh, a debt trader at state-owned Andhra Bank in Mumbai. “These factors could pressure yields further up.”
The yield on the benchmark 8.24% note due April 2018 rose 1 basis point to 9.17% at the 5.30 p.m. close of trading in Mumbai, according to the central bank’s trading system. The price fell 0.07, or 7 paise per Rs100 face amount, to 94.08. A basis point is 0.01 percentage point.
Ten-year yields have climbed in eight of the past nine weeks as the inflation rate in Asia’s third-largest economy tripled this year.
RBI raised its overnight lending rate by 0.5 percentage point on 24 June, the most since 2000, to 8.5%. Policymakers are scheduled tomeet on 29 July to review borrowing costs.
Bonds also declined on concern rising government debt sales will damp demand for existing securities, Singh said.
The Indian government is scheduled to raise as much as Rs96,000 crore ($22.2 billion) from bond sales in the first half of the fiscal year that started on 1 April, compared with Rs59,000 crore in the six months through March.
The rupee also extended last week’s 0.6% loss as oil companies increased dollar purchases to benefit from a drop in crude oil prices. The commodity dropped more than 2% from an all-time high of $145.85 a barrel reached on 3 July. A stronger local currency helps lower import costs for Asia’s third-biggest economy that imports about 70% of the oil it needs annually.
“Oil importers have bought dollars today, probably taking advantage of the early gains in the rupee,” said Paresh Nayar, head of currency and debt trading at Development Credit Bank Ltd in Mumbai. “Other importers are also likely to have bought dollars.”
The rupee dropped 0.3% to 43.2975 per dollar at the 5pm. close of trading in Mumbai, according to Bloomberg data. It rose as high as 43.075earlier.
“The rupee’s losses may be capped at 43.35, which seems to offer a strong technical resistance” for the dollar, Nayar said. Resistance is a level where buy orders may be clustered.