Bonds in India Set for Rout on Unexpectedly Hawkish RBI Minutes

(Bloomberg) — Sovereign Indian bonds are poised for another round of a selloff Friday as unexpectedly hawkish central bank minutes add to the pressure of higher oil prices.

The 10-year bond yield may climb by as much as 10 basis points, according to Vijay Sharma, New Delhi-based executive vice president for fixed-income at PNB Gilts Ltd. One-year interest-rate swap rose three basis points Thursday to 6.51 percent, the highest since March 9.

Minutes of RBI’s meeting this month, released Thursday, showed most members of the monetary policy committee are optimistic that the economy will rebound this year with the output gap closing. Deputy Governor Viral Acharya said he will shift decisively to vote for the start of the “withdrawal of accommodation” in the next meeting in June.

“The RBI minutes are very hawkish and we can expect a bigger selloff when the markets open,” said PNB’s Sharma. The move in interest-rate swap market can even be much bigger as it will bring forward expectations of rate hikes by the central bank, he said.

The benchmark yield climbed nine basis points to 7.63 percent Thursday. The yield surged 20 basis points this week as a rise in oil prices beyond $70 a barrel stoked concerns about inflation and the nation’s finances.

Global bonds also sold off Thursday in Europe and the U.S., with the move extending to other markets in Asia on Friday.

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