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Indian Bond Yields at Lowest Since 2010 as Commodity Prices Drop

India’s bonds advanced, sending the 10-year yield to the lowest since July 2010, on speculation falling commodity prices will reduce inflation and give the central bank room to cut interest rates.

Easing inflation “increases the probability of more accommodative monetary policy,” Raghuram Rajan, the top adviser in the Finance Ministry, said in an April 16 interview. Wholesale prices in India, which imports about 80 percent of its oil needs, rose 5.96 percent in March, the least since November 2009, and below the central bank’s 6.8 percent projection for the month. The cost of Brent crude dropped 12 percent to $97.63 per barrel this year.

“Monetary easing is definitely on the cards to restart the growth engine,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “The steep drop in prices of oil and gold is a huge positive.”

The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, to 7.78 percent as of 10:44 a.m. in Mumbai, according to the central bank’s trading system. That’s the lowest level for a benchmark 10-year note since July 2010, data compiled by Bloomberg show.

India is the world’s largest buyer of gold. Prices of the precious metal fell 0.6 percent to $1,367.76 an ounce today and are down more than 18 percent this year.

The nation’s gross domestic product rose 5 percent in the fiscal year ended March 31, the weakest pace since 2003, the statistics agency estimates. The Reserve Bank of India will cut the repurchase rate by 25 basis points to 7.25 percent at its next review on May 3, according to 12 of 13 economists in a Bloomberg News survey. One predicts no change.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points to 7.25 percent, the lowest level since January 2011, 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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