BackIndian bonds gain with yield falling towards eight-month low
The yield on benchmark bond fell two basis points to 8.53%
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Mumbai: India’s government bonds due 2023 rose, pushing the yield toward an eight-month low, after inflation slowed more than economists projected.
Consumer prices climbed 8.28% in May from a year earlier, compared with 8.59% in April, official data showed after the close of markets on Thursday. The median of 40 estimates in a Bloomberg News survey was for an 8.4% gain. A separate report showed factory output rose 3.4% in April, versus the 1.9% predicted. The Reserve Bank of India (RBI) will conduct a 14-day term repurchase auction for ₹ 61,000 crore on Friday.
The yield on the 8.83% notes due November 2023 fell two basis points, or 0.02 percentage point, to 8.53% as of 9.21am in Mumbai, according to prices from the RBI’s trading system. The rate, which climbed one basis point this week, reached 8.51% on 6 June, the lowest for a benchmark 10-year bond since October.
“We expect the RBI to defer further rate hikes, but are unlikely to reduce rates as well," Radhika Rao, an economist at DBS Bank Ltd in Singapore, wrote in a research note on Friday. The strength of the south-west monsoon and next month’s budget will be important variables for monetary policy.
RBI governor Raghuram Rajan, who has raised the benchmark repurchase rate by 75 basis points since taking charge in September to rein in prices, left it unchanged at 8% for a second straight meeting on 3 June.
Ten-year notes rallied last week, with the yield slumping 13 basis points to 8.51%, after the central bank said it could ease monetary policy should inflation slow more than anticipated. The RBI aims to curb consumer price gains to 8% by January 2015 and 6% a year later.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell two basis points to 8.22%, data compiled by Bloomberg show. They rose six basis points this week after reaching 8.16% on 6 June, the lowest level since July 2013. Bloomberg
Manish Modi in New Delhi contributed to this story
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