Traders See No Relief for Indian Bonds as Inflation Woes Mount

(Bloomberg) -- Sovereign bond traders’ worries about inflation are intensifying.

India’s consumer-price index accelerated at the fastest pace in seven months, data released Monday evening showed. The pace may quicken due to a bounce back in global energy prices, denying the inflation-targeting central bank space to lower interest rates next month at a time when economic growth is stuck at a three-year low.

Not surprisingly, the yield on the benchmark 10-year notes climbed above 7 percent Tuesday for the first time since last September. The yield could reach as high as 7.10 percent, according to IDFC Bank Ltd. Nomura Holdings Inc. is predicting CPI to rise above 4 percent this month, and to stay above the Reserve Bank of India’s 4 percent target through 2018.

Sovereign bonds have been under pressure on concerns rebounding oil prices would widen the government’s budget deficit, forcing it to boost the size of debt sales just when state administrations are borrowing heavily and the central bank is selling debt to suck out excess liquidity from the system.

©2017 Bloomberg L.P.