Why an inflation dip may not be good news for India's bond traders

India's benchmark 10-year sovereign bonds have slumped in six of the last eight months

Traders in India’s battered bond market would do well to take any potential easing in inflation with more than a pinch of salt.

A report Wednesday may show price pressures in August eased below 4 per cent for the first time in 10 months. While that sounds like good news, a currency that’s been slipping to a new record almost every day is ensuring that the optimism doesn’t last too long. The benchmark bond yield climbed to its highest level since 2014 this month.

“The worst is still to come” for bonds, with risks to inflation rising because of the rupee and