Mumbai: India’s 10-year bonds completed their best week in three months on speculation that the central bank will slash borrowing costs for the third time this year.
Benchmark yields fell to a six-week low on forecasts that the Reserve Bank of India will cut the repurchase rate by half a percentage point to 4.5% on Tuesday, according to a Bloomberg survey.
That may help cap yields as the government sells record amounts of debt this year to revive economic growth which was at its slowest pace in six years in the fourth quarter.
Investors are pricing in more easy monetary conditions, said Anoop Verma, a fixed-income trader at Development Credit Bank Ltd.
The yield on the 6.05% note due February 2019 slid 29 basis points this week to 6.41% at close in Mumbai, the most since the period ended 16 January, according to the central bank’s trading system.
The price climbed Rs2.04 per Rs100 face amount to 97.4275.
A basis point is 0.01 percentage point.
Central bank governor D. Subbarao has lowered interest rates five times since mid-October.
The regulator had last reduced the repurchase and reverse repurchase rates on 5 March by half a percentage point each to 5% and 3.5%, respectively, both of them at their lowest levels since the benchmarks were introduced in 2000.
The government plans to raise a record Rs2.41 trillion ($48.3 billion) from debt sales in the first six months of the fiscal year that started on 1 April, according to its borrowing calendar.
India on Friday sold a planned Rs8,000 crore of the 7.56% securities maturing in 2014 and Rs4,000 crore of the 8.24% debt due 2027. It sold the five-year bonds at a yield of 6.10% and the 18-year notes at 7.44%.
The Reserve Bank of India will keep interest rates unchanged on Tuesday and also leave the proportion of cash lenders must set aside to cover deposits unchanged, Sailesh Jha, an economist at Barclays Plc., the world’s third largest currency trader, wrote in a research report dated Thursday.
The cycle of reductions may be approaching an end, he said.
“In our view, RBI is close to ending the policy rate cutting cycle, possibly as soon as the second quarter, should the current improvement in global growth and financial market conditions continue,” Jha wrote.
“We believe the chances of there being no further policy rate cuts are growing,” the economist added.
The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, moved up.
The rate, a fixed payment made to receive floating rates, was at 5.51% versus 5.49% on Thursday.