Mumbai: Indian federal bond yields fell to their lowest in nearly three years on Friday as lower oil prices and falling inflation bolstered expectations the central bank would cut interest rates soon.
At 10:05am, the benchmark 10-year bond yield was at 7.13%, off an early low of 7.10% which was its lowest since December 2005. It had ended at 7.26% on Thursday.
“I expect the 10-year to be 7.15% on the top and 7.07 on the lower side. Even if RBI doesn’t cut rates, I don’t see yields going beyond 7.40%,” Anoop Verma, associate vice president at Development Credit Bank said, referring to the Reserve Bank of India.
Oil fell to a 3- year low below $49 a barrel on Friday, to be down nearly $100 from a record high in July.
Annual inflation eased to a 5-month low of 8.90% in early November, from a peak of 12.91 percent in August.
With further moderation in inflation expected given the fall in oil prices, the market thinks the central bank can cut interest rates further to shore up growth.
A auction of of $1.8 billion of government bonds on Friday will be watched for signs of the strength of demand.