Ten-year bonds drop as oil spike fuels inflation concern1 min read . Updated: 16 Jun 2014, 12:44 PM IST
The yield rose to a two-week high and oil futures in New York climbed for a fourth day
Mumbai: India’s government bonds due in 2023 fell, pushing the yield to a two-week high, on concern rising oil prices will fuel inflation and restrict the central bank’s ability to ease monetary policy.
Oil futures in New York climbed for a fourth day, as escalating violence in Iraq stoked concern supplies will be disrupted. Brent crude also advanced, threatening to spur inflation in India, which imports about 80% of its needs.
Data due on Monday will show wholesale prices rose 5.34% in May from a year earlier, following a 5.20% gain in April, according to the median forecast in a Bloomberg survey of analysts.
The yield on the 8.83% notes due November 2023 rose three basis points, or 0.03 percentage point, to 8.63% as of 10.05am in Mumbai, prices from the central bank’s trading system show. That’s the highest since the June 2 close at 8.66%.
“The spike in oil prices has renewed inflation concerns," Mohan Shenoi, president for group treasury and global markets at Kotak Mahindra Bank Ltd. in Mumbai, said by telephone. “There will be some stress for the bond market before this passes."
Consumer prices in India rose 8.28% in May from a year earlier, compared with an 8.59% increase in April, official data showed last week.
The Reserve Bank of India (RBI) aims to slow gains in the price gauge to 8% by January 2015 and 6% a year later.
RBI governor Raghuram Rajan, who has raised the benchmark repurchase rate by 75 basis points since taking charge in September to rein in prices, left it unchanged at 8% for a second straight meeting on 3 June. The RBI has said it could ease monetary policy should inflation slow faster than anticipated.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose two basis points today to 8.28%, data compiled by Bloomberg show. They jumped 11 basis points last week. Bloomberg