(Bloomberg) -- Indian bonds fell, driving the benchmark 10-year yield to the highest in a month, on concern higher U.S. interest rates may hurt demand for emerging-market assets.
Overseas holdings of government and corporate debt declined by 71.5 billion rupees ($1.1 billion) in October, the biggest monthly outflow since February, National Securities Depository Ltd. data show. The probability of the Federal Reserve tightening policy by December climbed to 71 percent this week from 59 percent at the end of September, futures data compiled by Bloomberg show. The Fed has an interest-rate meeting on Nov. 2.
“Investors are turning more cautious ahead of the FOMC meeting tomorrow,” said Harish Agarwal, a Mumbai-based fixed-income trader at FirstRand Bank Ltd. “Investors will be keenly watching for any cues on the Fed rate hikes from the meeting and that will guide the bonds locally.”
The yield on India's 6.97 percent bonds due in September 2026 rose to 6.82 percent in Mumbai from 6.79 percent on Friday, prices from the Reserve Bank of India's trading system show. That's the highest close since Sept. 29. Indian markets re-opened Tuesday after a public holiday on Monday.
The rupee strengthened 0.1 percent to 66.72 per dollar, according to prices from local banks compiled by Bloomberg.
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Subramaniam Sharma, Karthikeyan Sundaram
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