Bonds hit six-month low

Indian bonds fell the most in almost six months as the central bank left its benchmark interest rates unchanged near a six-year high to assess the effect of slowing global growth on Asia's third-largest economy.

The benchmark yield jumped from near a 14-month low as the Reserve Bank of India Governor Yaga Venugopal Reddy said crude oil and food prices threatened to fan inflation.

Today's decision dashed speculation he would follow the US Federal Reserve by lowering local borrowing costs. Six of the 18 economists surveyed by Bloomberg News expected Reddy to reduce the repurchase rate by a quarter percentage point while the rest predicted no change.

"Investors had priced a rate cut, so bond yields will correct upwards in the near term," said Chidambaram Lakshmanan, a fixed-income trader at IndusInd Bank in Mumbai.

"The central bank has laid more emphasis on domestic inflation than what is happening to global inflation and interest rates."

The yield on the most-traded 7.99 per cent note due 2017 climbed 9 basis points to 7.545 per cent at the 5.30 pm close in Mumbai, according to the central bank's trading system. That's the biggest rise since July 31. The price fell 0.62, or 62 paise per 100-rupee face amount, to 102.96. A basis point is 0.01 percentage point.

The Fed last week, in an emergency move, cut its funds target rate by 0.75 percentage point to prevent the world's biggest economy from slipping into recession.

Since the beginning of 2007, banks and securities firms worldwide have written down $133 billion in assets following credit losses stemming from subprime mortgages in the US.