Bond Traders on the Brink as India's CPI Seen at 14-Month High

(Bloomberg) -- India’s battered sovereign-bond market is grappling with two new challenges this week. One is the likelihood of data Tuesday showing a further pickup in inflation, and the other is a potential decline in liquidity.

The pressure from this double whammy is already showing: the yield on notes due May 2027 jumped eight basis points to 7.17 percent on Monday, the highest close for a benchmark 10-year security since August 2016. Consumer prices probably rose 4.28 percent in November from a year earlier, according to the median estimate in a Bloomberg survey. That will be the fastest pace since September last year.

“The markets are on tenterhooks given the expectations of higher CPI,” said Sandeep Bagla, associate director at Trust Capital Services Pvt. in Mumbai. “There’s no visible trigger seen bringing relief.”

The CPI data will be released at 5:30 p.m. in Mumbai.

Demand for bonds is seen weakening further as advance-tax payments by companies sap liquidity at banks, the biggest holders of government debt. That’s certainly not what the doctor ordered, given that the 10-year yield is rising in December for a fifth straight month.

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