Bloomberg News

India Bond Yields Drop to Three-Month Low on Rate Speculation

June 12, 2012

India’s benchmark bonds rose, pushing yields to a three-month low, on speculation the central bank will cut borrowing costs next week to revive a slowing economy.

The Reserve Bank of India will lower the repurchase rate by 25 basis points to 7.75 percent on June 18, according to 11 of 15 economists in a Bloomberg survey. Two predicted the central bank will leave the rate unchanged and the rest forecast a 50 basis point reduction. Gross domestic product rose 5.3 percent in the first quarter from a year earlier, the least in nine years, official data showed on May 31.

“Bond investors are bullish, driven by rate-cut expectations,” J. Moses Harding, the Mumbai-based executive vice president at IndusInd Bank Ltd., wrote in a note to clients. “Overall, it’s good to stay invested in bonds into the monetary-policy meeting.”

The yield on the government’s 8.79 percent bonds due November 2021 fell one basis point, or 0.01 percentage point, to 8.32 percent as of 9:31 a.m. in Mumbai, according to the central bank’s trading system. That was the lowest level since March 14.

The central bank will cut the repurchase rate and lenders’ reserve requirements by 50 basis points each, Harding predicted.

The monetary authority last reduced the repo rate by 50 basis points to 8 percent in April after raising it 13 times between March 2010 and October 2011. The reserve ratio has been cut by 125 basis points this year to 4.75 percent.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, fell five basis points to 7.54 percent, the lowest level since August, according to data compiled by Bloomberg.

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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