Indian bond yields near 4-yr lows on rate cut view

Indian bond yields near 4-yr lows on rate cut view

Mumbai: Indian federal bond yields dropped within sight of 4-year lows on Tuesday, as expectations rose that the central bank will cut interest rates further to boost the economy, but gains may be limited in year-end trading.

At 10:30am, the benchmark 10-year bond yield was at 5.45%,10 basis points below Monday’s close of 5.55% and in striking distance of a 4-year low of 5.40% hit earlier this month.

At the day’s low of 5.44%, it has fallen 163 basis points so far in December. Volumes were light at Rs38.50 billion ($794 million) on the central bank’s trading platform.

“There is a very limited upside from these levels as the market has already factored in a 100 basis points cut each in the repo and reverse repo rate," said a trader at a European bank.

Traders said talk of more rate cuts had been circulating but hopes of central bank action intensified after a meeting between central bank governor D. Subbarao and prime minister Manmohan Singh on Monday, ahead of a scheduled policy review on 27 January.

Recent comments by top ministry officials have also indicated more monetary easing.

The central bank will auction Rs15 billion of bills on Wednesday and Rs100 billion of bonds on Friday. It will buy back Rs100 billion of intervention bonds on Thursday.

Dealers said the auction was likely to see a good response from banks as they meet the central bank’s statutory reserve requirement.