India’s 10-Year Bond Yield at Three-Month Low as RBI to Buy Debt

India’s benchmark 10-year bonds rose, pushing the yield to a three-month low, as debt purchases by the central bank and speculation borrowing costs will be cut buoyed demand.

The Reserve Bank of India will buy a maximum of 120 billion rupees ($2.2 billion) of notes at an auction tomorrow, according to a statement from the monetary authority. The RBI has already bought 321 billion rupees of bonds this fiscal year that began April 1. There is room to cut interest rates after economic growth slowed and oil prices dropped, RBI Deputy Governor Subir Gokarn said last week.

“We think that rate-cut expectations along with debt purchases will support government bonds,” analysts at Barclays Plc’s investment banking unit including Singapore-based Kumar Rachapudi, wrote in a report today.

The yield on the government’s 8.79 percent bonds due November 2021 fell four basis points, or 0.04 percentage point, to 8.32 percent as of 9:30 a.m. in Mumbai, according to the central bank’s trading system. That was the lowest level since March 14.

India’s economy expanded 5.3 percent in the first quarter from a year earlier, compared with 6.1 percent in the preceding three months, according to official data. The central bank is due to review borrowing costs on June 18.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose three basis points to 7.62 percent, according to data compiled by Bloomberg.

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