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Indian 10-Year Bonds Head for Biggest Weekly Gain Since August

Indian bonds headed for their biggest weekly advance since August on optimism falling oil prices will aid central bank efforts to curb inflation.

Brent crude dropped 23 percent since the end of June, reducing costs for India, which relies on imports to meet about 80 percent of its oil requirements. Data this week showed consumer pricesrose 6.46 percent in September from a year earlier, the least since the index was created in early 2012.

The yield on the 8.4 percent government bonds due July 2024 fell seven basis points, or 0.07 percentage point, this week to 8.39 percent as of 10:03 a.m. in Mumbai, according to prices from the central bank’s trading system. The rate rose two basis points today after closing yesterday at the lowest level for a benchmark 10-year note since September 2013.

“India looks to be in a sweet spot at the moment, thanks to the sharp decline in oil prices,” said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai. “We see 10-year yields staying at sub-8.50 percent levels if oil remains stable in the near term.”

The drop in bond yields is “partly signaling our success in controlling inflation,” Reserve Bank of India Governor Raghuram Rajan said in Hyderabad yesterday. The benchmark 10-year yield may fall to 8.20 percent next quarter, Nomura Holdings Inc. forecasts, while JPMorgan Asset Management sees it falling to as low as 8 percent.

India’s wholesale-price inflation eased to a five-year low of 2.38 percent in September.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell 16 basis points since Oct. 10 to 8.21 percent, poised for the biggest weekly decline since June, data compiled by Bloomberg show. They rose two basis points today.

http://www.bloomberg.com/