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India Sovereign Bonds Gain for Third Day on Rate-Cut Speculation

Indian government bonds gained for a third day on speculation the central bank will cut borrowing costs this month to revive an economy growing at the slowest pace in almost four years.

Finance Minister Palaniappan Chidambaram said on March 4 he hopes interest rates will be cut after official data last week showed gross domestic product increased 4.5 percent last quarter from a year earlier. The Reserve Bank of India lowered the repurchase rate by 25 basis points to 7.75 percent on Jan. 29, the first reduction in nine months. The next policy review is due on March 19.

“The RBI is certain to cut rates to address growth concerns,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd. “That expectation is driving yields lower.”

The yield on the 8.15 percent bonds due June 2022 fell one basis point to 7.86 percent in Mumbai, according to the central bank’s trading system. The rate has dropped five basis points, or 0.05 percentage point, this week.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, was little changed at 7.58 percent, according to data compiled by Bloomberg.

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