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Indian 10-Year Bond Yield at Two-Month Low on Easing Speculation

Oct. 4 (Bloomberg) -- India’s 10-year bonds were little changed, with yields holding at the lowest level in almost two months, on optimism the central bank will cut interest rates to support the government’s efforts to boost economic growth.

Indian ministers are scheduled to consider proposals to lift caps on foreign holdings in the nation’s insurance and pension industries today. The government cut energy subsidies and allowed more overseas investment in retailing and aviation last month. The central bank, which cut the repurchase rate by 50 basis points in April, kept it unchanged at 8 percent at the last three policy meetings.

“The proposed reform measures suggest that the RBI will supplement the government’s effort in pushing growth,” said Srinivasa Raghavan, an executive vice president of treasury at Dhanlaxmi Bank Ltd. in Mumbai. “We can see some monetary easing in the coming months.”

The yield on the 8.15 percent notes scheduled June 2022 was little changed at 8.15 percent in Mumbai, according to the central bank’s trading system. That matched the level touched yesterday, which was the lowest since Aug. 9.

Yields retreated, after falling as much as two basis points earlier, as central bank Governor Duvvuri Subbarao said inflation was still holding above the RBI’s “comfort zone.”

Headline inflation accelerated to 7.55 percent in August, the fastest pace in the BRIC group of largest emerging nations, which includes Brazil, Russia and China.

The Indian economy expanded 5.5 percent in the three months ended June 30, government data show. Growth was 5.3 percent in the previous quarter, the least since 2009.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose one basis point to 7.60 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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