Bonds rise on China rate cut, falling oil

Bonds rise on China rate cut, falling oil

Mumbai: Indian bonds rose the most in more than a month after China cut interest rates for the first time in six years, adding to speculation that borrowing costs will fall worldwide amid slowing growth and falling commodity prices.

Yields on benchmark 10-year bonds fell to the lowest in more than three months after crude oil in New York fell below $100 (Rs4,590) per barrel for the first time in six months. Bonds also rose after Lehman Brothers filed for bankruptcy, stoking speculation that liquidation of the 158-year-old US securities firm will deepen a financial crisis that threatens to drag the global economy into a recession.

“India’s monetary policy decisions have resembled those of China in recent years," said Krish Ramkumar, who manages the equivalent of $1.1 billion in Indian debt at Sundaram BNP Paribas Asset Management Co. in Mumbai. “China’s rate cut emphatically marks a clear change of direction in global growth and monetary trends. Also, the news came the same day oil broke below $100."

The yield on the benchmark 8.24% note due April 2018 fell 20 basis points to 8.15% as of the 5.30pm close in Mumbai. The price rose 1.34 per Rs100 face amount to 100.55. A basis point is 0.01 percentage point.

The People’s Bank of China reduced the one-year lending rate to 7.2% from 7.47%, effective Tuesday, and lowered the reserve ratio at smaller banks by 1 percentage point. Crude oil has fallen more than 35% from a record $147.27 per barrel reached in July to a seven-month low of $95.43.

Lehman, the fourth biggest US investment bank that failed to find a buyer and succumbed to the subprime mortgage crisis, and Merrill Lynch and Co. agreed to be sold, adding to evidence that the credit crisis is deepening and threatening the global economy.

Bonds fell earlier on concern tax payments by companies and fund outflows from emerging markets will reduce cash in the financial system. The overnight loan rate in the money market climbed to a four-month high, making it more expensive to buy debt with borrowed funds.