India Bond Yield at 1-Week Low as Growth Seen Slowest in Decade

India’s benchmark 10-year bond yield touched a one-week low on speculation the slowest economic growth in almost a decade will prompt the central bank to further ease monetary policy.

Asia’s third-largest economy will expand 5 percent in the fiscal year ending March 31, compared with 6.2 percent in the prior 12 months, the Central Statistical Office said today. The Reserve Bank of India cut its benchmark repurchase rate on Jan. 29 for the first time since April.

The yield on the 8.15 percent notes due June 2022 fell three basis points to 7.88 percent, according to the central bank’s trading system.

“Given slowing growth and monetary easing, we suggest investors stay strategically long on bonds,” said Vivek Rajpal, a fixed-income strategist at Nomura Holdings Inc. in Mumbai. Nomura predicts the 10-year yield will drop to 7.80 percent by the end of March. The central bank may again cut interest rates in May, he said.

The RBI reduced the repurchase rate last week to 7.75 percent from 8 percent. Governor Duvvuri Subbarao cut the cash reserve ratio to 4 percent from 4.25 percent, effective Feb. 9, injecting 180 billion rupees ($3.35 billion) into the banking system.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell one basis point to 7.63 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

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

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