Mumbai: India’s 10-year bonds fell on Wednesday, pushing yields to the highest in almost six weeks, after the government raised fuel prices to pass on the increased cost of crude oil to domestic consumers.
Benchmark notes headed for the biggest two-day loss in two weeks on speculation that costlier petrol, diesel and cooking gas will push the inflation rate up from a three-and-a-half-year high. A government report this week may show wholesale prices climbed by the most since August 2004, economists in a Bloomberg survey said.
“The fuel price increase will surely feed into inflation,” said Krishnamurthy Harihar, head of treasury at Mumbai-based Development Credit Bank Ltd. “Inflation isn’t going to back off and so yields aren’t going to come down.”
The yield on the benchmark 8.24% note due April 2018 closed 2 basis points up at 8.14%, the highest since 25 April, according to the central bank’s trading system. The price declined 0.13, or 13 paise per Rs100 face amount, to 100.66. A basis point is 0.01 percentage point.
Inflation rose to 8.29% in the week ended 24 May, from 8.1% the previous week, the median estimate of nine economists showed. The trend is “worrisome,” finance minister P. Chidambaram said on 30 May.
“There’s little scope for bond yields to ease as inflation concerns remain,” said Vineet Malik, head of interest-rate trading at HSBC Holdings Plc.’s unit in Mumbai.
The 10-year note may yield 8.05-8.35% in the next two months, Malik said. The rate may reach 8.34% by end-September, according to a median estimate of seven economists surveyed by Bloomberg.