India 10-Year Bonds Gain as Europe Crisis Boosts Rate-Cut Chance

India’s benchmark bonds due 2022 advanced, pushing the yield down from a one-month high, as fresh concern Europe’s debt crisis will worsen added to speculation the central bank will cut borrowing costs again.

Spanish 10-year bond yields rose to a seven-week high yesterday as Prime Minister Mariano Rajoy struggles to impose austerity and restore confidence amid corruption allegations. The Reserve Bank of India lowered interest rates for the first time since April last week and cut the amount of deposits lenders must set aside as reserves.

The yield on the 8.15 percent bonds due June 2022 fell one basis point, or 0.01 percentage point, to 7.93 percent as of 10:17 a.m. in Mumbai, according to the central bank’s trading system. The rate of 7.94 percent yesterday was the highest since Jan. 3.

“Renewed European debt crisis concerns would affect the global outlook,” said Rees Kam, a strategist at SJS Markets Ltd., a Hong Kong-based financial services company that specializes in fixed income. “That reinforces rate-cut expectations. Inflation has slowed quite a fair bit in India.”

Wholesale prices rose 7.18 percent in December, the least in three years, the government reported last month.

“There is an increasing likelihood of inflation remaining range-bound around current levels going into 2013-2014,” the RBI said in a statement on Jan. 29. “This provides space, albeit limited, for monetary policy to give greater emphasis to growth risks.”

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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