Bloomberg News

India’s 10-Year Bonds Complete 3rd Weekly Gain on Rate Outlook

November 25, 2011

Nov. 25 (Bloomberg) -- India’s 10-year bonds completed a third weekly gain on speculation slowing economic growth will prompt the central bank to halt interest-rate increases.

Yields on debt due 2021 were near this month’s lowest level after the commerce ministry reported yesterday that food inflation declined to 9.01 percent in the week ended Nov. 12, the slowest pace in almost four months. The nation’s factory output rose 1.9 percent in September from a year earlier, the smallest gain in two years, official data showed this month.

“Investors expect the Reserve Bank of India to stop raising borrowing costs,” said Debendra Kumar Dash, a fixed- income trader at Development Credit Bank in Mumbai. “The central bank may also infuse cash into the banking system.”

The yield on the 8.79 percent bonds due November 2021 fell two basis points, or 0.02 percentage point, this week to 8.82 percent in Mumbai, according to the central bank’s trading system. It touched 8.79 percent yesterday, the lowest level since Oct. 27. The rate rose two basis points today after the government sold a total 130 billion rupees ($2.5 billion) of debt maturing in 2020, 2024 and 2040 at an auction.

The Reserve Bank of India has raised its repurchase rate by 3.75 percentage points since the start of 2010 to 8.5 percent to curb inflation.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose three basis points this week to 8.12 percent, according to data compiled by Bloomberg.

--Editors: Anil Varma, Simon Harvey

To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

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


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