India’s 10-year bonds completed the best week since April amid optimism the central bank will cut interest rates this quarter to support a slowing economy.
The Reserve Bank of India will lower the repurchase rate by 50 basis points to 7.5 percent by March 31 in the first reduction since April, according to 11 of 20 analysts surveyed by Bloomberg. The next review is on Jan. 29. The authority bought 78.45 billion rupees ($1.4 billion) of sovereign debt at an open-market auction today, it said in a statement.
“We recommend long positions in 10-year bonds, targeting an additional drop in yields of about 75 basis points over the next six months,” analysts at Barclays Plc, including Singapore-based Igor Arsenin, wrote in a research note today. “Easing expectations, low supply in January, and the RBI’s continued purchase of bonds through open-market operations remain favorable for fixed-income markets.”
The yield on the 8.15 percent notes due June 2022 fell 18 basis points, or 0.18 percentage point, this week to 7.93 percent in Mumbai, according to the central bank’s trading system. The rate, which touched a two-year low of 7.90 percent on Jan. 1, fell four basis points today.
Seven economists in the Bloomberg survey see a 25 basis point reduction in the repo rate this quarter. One expects no change while Woori CBV Securities Corp. forecasts a 25 basis point increase.
Bonds also gained after the finance ministry deferred a 120 billion rupee debt auction scheduled for this week to February, according to an RBI statement on Dec. 31.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was steady at 7.5925 percent, data compiled by Bloomberg show. It dropped four basis points this week.