Bloomberg News

India Bonds Gain Most This Year as RBI Signals End of Rate Rise

October 25, 2011

Oct. 25 (Bloomberg) -- India’s 10-year bonds rallied the most this year as the central bank raised its repurchase rate by 25 basis points to 8.50 percent, as forecast by 18 of 28 economists surveyed by Bloomberg News.

Yields on the most-traded security due 2021 fell to the lowest level in more than two weeks. The Reserve Bank of India, which boosted borrowing costs today for the 13th time since the start of 2010, said monetary tightening may not continue beyond December. One-year interest-rate swaps slid the most this month as traders pared bets for rate increases.

“The RBI’s hike today and the indication of a pause are in line with our expectations,” said Kumar Rachapudi, a Singapore- based strategist at Barclays Capital. “The 10-year bond yield will likely move between 8.70 percent and 8.90 percent in the medium term unless the RBI comes out and announces open market operations” to buy debt.

The yield on the 7.80 percent government note due 2021 dropped 12 basis points, or 0.12 percentage point, to 8.69 percent as of 11:30 a.m. in Mumbai, according to the central bank’s trading system. That is the lowest level since Oct. 5 and the biggest decline since Dec. 7, according to data compiled by Bloomberg. The rate was at 8.77 percent before the Reserve Bank announced its decision.

The cost of one-year swaps, or derivative contracts used to guard against fluctuations in borrowing costs, fell 17 basis points to 8.14 percent, according to data compiled by Bloomberg.

--Editors: Anil Varma, Andrew Janes

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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