India bond yields at 8-mth lows on cash rate hopes

India bond yields at 8-mth lows on cash rate hopes


Mumbai: Indian federal bond yields dropped to 8 month lows on Friday as slowing inflation and tight cash conditions in the money market raised hopes policy makers may take fresh liquidity boosting measures.

At 10:15 a.m. (0445 GMT), the 10-year federal bond yield was at 7.43%, a level it last tested in mid-February and 8 basis points below Wednesday’s close of 7.51%. Thursday was a market holiday.

The yield has fallen 37 basis points so far this week and is down nearly 2% points since late July.

Volume was a normal Rs28 billion ($566 million) on the central bank’s electronic trading platform with the 10-year bond the most active.

“Falling inflation and oil prices have raised expectations that policy makers will follow up their recent measures with more liquidity boosting steps such as an additional cash reserve ratio cut," said Satish Jeurkar, head of fixed income at Saraswat Bank.

India’s annual inflation rate eased to a 4- month low of 10.68% in mid-October and could be in single digits before the end of 2008, giving the central bank room to cut rates further to shore up growth, analysts said on Thursday.