Bond yields at 3-week low as inflation eases

Bond yields at 3-week low as inflation eases

Mumbai: Indian federal bond yields fell to their lowest in three weeks on Monday as inflation dropped below 12% for the first time in three months and cash availability in the banking system improved.

By 10:20am, the benchmark 10-year bond yield was at 8.12%, its lowest since 15 September and sharply below Friday’s close of 8.30%.

“Inflation is below 12% and oil prices are falling. Basically, there are no negative news and that has triggered the rally," a dealer with a state-run bank said.

The wholesale price index rose 11.99% in the 12 months to 20 September, below a Reuters forecast for a rise of 12.13% and the lowest since June 21, data published after market had shut on Friday showed.

Oil was trading below $92 a barrel as traders feared efforts to contain the spreading credit crisis would fail to stave off a deeper decline in oil demand.

The overnight cash rate dropped to 10.75/11.25% from Friday’s close of 13.50/14 %, which dealers said indicated a pick up in government spending towards payment of salaries and back pay to civil servants.

Last week, it hit an 18-month high of 17.5%.

The government aims to raise Rs170 billion this week, through treasury bills on Wednesday for Rs70 billion and auction of bonds for Rs100 billion on Friday.