Indian bonds are the worst-performing in Asia and they may fall further

Indian bonds, the worst performer this month among Asian peers, may have further to fall with no let-up in the bad news weighing on investors.

The benchmark 10-year debt sold off Wednesday evening after S&P Global Ratings warned of a downgrade, dealing a blow to an already frail sentiment. The Reserve Bank of India’s shock hold on rates had sparked the worst weekly fall in bond prices in more than one-and-a-half years.

S&P’s red flag adds to lingering concerns about a wider fiscal deficit, rising inflation, volatile oil prices and the absence of bond purchases by the RBI. No wonder global funds have turned cautious in recent days, selling the most Indian bonds in a year on Tuesday.

“Sentiment has been very negative after the RBI policy, and with every incremental negative news bonds are testing new lows,” said Paresh Nayar, currency and money markets head at FirstRand Ltd. in Mumbai. S&P’s warning brings back into focus concerns about India’s deteriorating economic health, he said.

The yield on benchmark 10-year bonds climbed 30 basis points so far this month, the most among Asian nations, fueled partly by concerns data due Thursday may show consumer-price inflation quickened to highest in more than three years in November. The yield jumped five basis points on Wednesday after S&P’s comments.