Mumbai: The 10-year bonds completed the biggest weekly gain in at least a decade on speculation slowing inflation will allow the Reserve Bank of India (RBI) to reduce borrowing costs.
Yields on benchmark notes slid to the lowest since June 2004 after the government on Thursday said wholesale prices climbed 6.84% in the week ended 6 December, the slowest pace in nine months.
Bonds also climbed after the US Federal Reserve cut its benchmark rate to a record low this week, adding pressure on RBI to further slash its policy rate after three reductions this quarter.
“Bond yields have fallen sharply this week as inflation fell and the Fed cut rates,” said Prasanna Patankar, head of fixed income trading at Securities Trading Corp. of India Ltd. “The market is waiting to see if there’ll be more policy measures to stimulate growth. Another 50 basis point cut in benchmark interest rates is expected.”
The yield on the 8.24% note due April 2018 dropped 66 basis points to 5.56% in Mumbai, according to RBI’s trading system.
The price climbed 5.11 per Rs100 face amount to 119.3. A basis point is 0.01 percentage point.
Ten-year yields have dropped 3.99 percentage points from a seven-year high of 9.55% reached in July, heading for the first annual decline since 2003.