New Delhi: India’s 10-year bonds rallied, pushing yields to the lowest in a month, on speculation that slowing inflation will keep the central bank from raising interest rates when policy makers meet this month.
Bonds also extended two weeks of gains after the government reduced treasury bill sales to almost a 10th this week, spurring optimism that less supply will boost demand for the debt. Wholesale prices rose 4.03% in the seven-day period ended 16 June, the least in 13 months, the government said last week.
“In the very short run, inflation and liquidity appear very comfortable for bonds,” said Navneet Munot, who helps manage $3.9 billion in Indian debt at Birla Sun Life Asset Management Co. in Mumbai. “From a medium-term perspective, we are very close to seeing yields peaking.”
The yield on the 7.49% note due in April 2017 fell 7 basis points, or 0.07 percentage point, to 8.11% at the 5.30pm close of trading in Mumbai, according to the Reserve Bank of India’s (RBI) trading system. The price of the security rose 0.46, or 46 paise per 100-rupee face amount, to 95.83. Yields move inversely to prices.
RBI governor Y.V. Reddy raised the benchmark overnight lending rate six times in the past 18 months to contain inflation to 5% in the fiscal year ended 31 March. He also vowed to slow inflation to as low as 4% in the “medium term.”
The central bank, which will meet on 31 July to review interest rates, is “still analyzing” the inflation data, Reddy told reporters on 29 June.
“Optimally, ideally, we should be closer to 3% so that the global integration is far smoother,” he told reporters in Pune.
The government will sell a combined Rs1,500 crore of treasury bills due in three months and a year on 4 July, compared with Rs11,000 crore of the short-term securities last week.
India will also sell Rs10,000 crore worth of bonds on 6 July as part of its annual borrowing programme, the finance ministry announced on 29 June.