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BLBG: India Bonds Complete Best Week Since August as Commodities Fall
 
By Anil Varma

Oct. 3 (Bloomberg) -- India's 10-year bonds completed the biggest weekly advance in more than a month as crude oil led a decline in commodity prices, tempering concern inflation will accelerate.

Yields on benchmark notes fell to the lowest in more than two weeks as oil prices in New York were set for the biggest weekly loss since December 2004. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has declined almost 30 percent from a July peak.

``Crude oil, along with most other commodities, has retraced a lot in the recent weeks and the trend is still continuing,'' said Baljinder Singh, a trader at state-owned Andhra Bank in Mumbai. ``That has eased inflation concerns and encouraged bond investors.''

The yield on the benchmark 8.24 percent note due April 2018 declined 30 basis points this week to 8.3 percent as of the 5:30 p.m. close in Mumbai, according to the central bank's trading system. The price rose 1.94 per 100 rupee face amount to 99.63.

Crude oil has plunged almost 36 percent from a record high of $147.27 per barrel reached in July. Asia's third-largest economy imports almost three-quarters of the oil it uses.

A government report showed today that wholesale prices gained 11.99 percent in the week ended Sept. 20, compared with 12.14 percent in the previous week. India's inflation rate touched a 16-year peak of 12.63 percent in August.

Banks' Demand

Bonds also gained on speculation domestic banks, the biggest investors in Indian debt, bought the securities to cover an increase in deposits. Indian lenders are required by law to invest at least 25 percent of their deposits in government debt or other low-risk securities approved by the central bank.

``Bonds also benefited from banks' demand for debt to meet statutory investment requirements,'' Andhra Bank's Singh said.

Indian bank deposits grew 22.5 percent in the 12 months ended Sept. 12, according to the central bank.

The cost of benchmark Indian interest-rate swaps, or derivative contracts used to guard against rate fluctuations, fell. The five-year swap rate, a fixed payment made to receive floating rates, slid 26 basis points this week to 7.91 percent. It was at 8.25 percent at the previous close.

To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.

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