India’s 10-year bonds advanced for the second day, pushing yields to the lowest in almost a month, after inflation slowed to the least in 16 months.
Wholesale prices gained less than 4%—the government’s target—for the first time since April 2006. Bonds also rose on optimism that central banks worldwide will start cutting or stop raising interest rates to reduce the impact of the US subprime credit rout on economic growth.
“Bonds surely have a positive outlook, at least for the short term,” said Amandeep Chopra, who manages the equivalent of $5.4 billion (Rs22,140 crore) in Indian debt at UTI Asset Management Co. Pvt. Ltd in Mumbai.
“Inflation is well into a comfort zone as far as policymakers and the market are concerned,” he added.
The yield on the benchmark 7.49% note due April 2017 fell three basis points, or 0.03 percentage point, to 7.90% at close in Mumbai, according to the Reserve Bank of India’s (RBI) trading system—the lowest since 7 August. The price rose 0.185, or 19 paise per Rs100 face value, to Rs97.25. The 10-year yield may decline to 7.85% in the next two weeks, Chopra said.
The median forecast for the rate at the end of this month in a 22 August Bloomberg survey of eight analysts was for 7.95%.
Inflation slowed to 3.94% in the week ended 18 August, from 4.10% the previous week, the commerce and industry ministry said on 31 August.
RBI wants to cap weekly gains in wholesale prices at 5% through the fiscal year, which started on 1 April. The inflation rate has remained below this level since 9 June.