Indian bonds fell on speculation the central bank will raise borrowing costs to stem inflation. The benchmark 10-year bond yield, which moves inversely to price, rose to the highest since August after US treasury yields on Tuesday reached a five-year peak.
India’s industrial output rose more than estimated in April even after the central bank increased borrowing costs twice this year to temper inflation in the world’s second-fastest growing major economy. “The latest industrial production data has strengthened expectation of an interest rate increase,” said M. Natarajan, head of trading at IndusInd Bank Ltd in Mumbai. “Also, there seems to be a declining trend emerging in the US and that is pressuring yields here to rise more.”
The yield on the 8.07% note due January 2017 rose 2 basis points, or 0.02 percentage point, to 8.24% as of the 5.30pm close in Mumbai, according to RBI. Meanwhile, the rupee dropped, ending two days of gains, on speculation importers will take advantage of the advance this week to buy dollars to pay for shipments.
Importers such as Indian Oil Corp. Ltd will save costs purchasing dollars after the local currency gained 8.3% this year, the second-best performer in Asia this year.
The rupee fell 0.6% to 40.985 against the dollar at the 5pm close of trading in Mumbai, according to data compiled by Bloomberg. It has gained in the three months through May. BLOOMBERG
Anil Varma of PTI contributed to this story.