Bloomberg News

India 10-Year Bond Yields Fall to Five-Month Low on Rate Outlook

January 09, 2012

Jan. 9 (Bloomberg) -- India’s 10-year bonds gained for a third day, pushing yields to a five-month low, on speculation the central bank will start easing monetary policy as growth and inflation slow.

Benchmark 10-year yields, which rose 65 basis points last year as the Reserve Bank of India boosted its repurchase rate seven times, have declined 37 basis points in 2012. The central bank may cut the amount of cash lenders must set aside as reserves by 50 basis points from 6 percent on Jan. 24 and then follow up with a reduction in borrowing costs in the weeks after that, according to J. Moses Harding, an executive vice president at IndusInd Bank Ltd. in Mumbai.

“A reversal in the rate cycle is on the cards as the growth and inflation numbers are giving some comfort to the Reserve Bank” that there is room to cut rates, Harding said. “That outlook is bullish for bonds.”

The yield on the 8.79 percent bonds due November 2021 fell three basis points, or 0.03 percentage point, to 8.20 percent in Mumbai, according to the central bank’s trading system. That is the lowest level for benchmark 10-year rates since Aug. 10.

The wholesale-price index rose 7.68 percent in December, less than 9.11 percent in November and the slowest pace in two years, according to a Bloomberg survey of economists before data due next week. Industrial production contracted 5.1 percent in October from a year earlier, the first drop since June 2009, official data show.

Economic growth in Asia’s third largest economy will be about 7 percent this year ending March 31, Prime Minister Manmohan Singh said yesterday, less than a December prediction of 7.5 percent.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose three basis points to 7.76 percent, according to data compiled by Bloomberg.

--Editors: Andrew Janes, Anil Varma

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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