India’s 10-year government bonds rose, pushing the yield to a one-week low, on speculation the central bank will focus on economic growth after second-quarter figures trailed estimates.
The economy expanded 4.4 percent in the three months through June, a report showed Aug. 30 after the close of trading. That’s the slowest pace since 2009 and short of the 4.7 percent median forecast in a Bloomberg survey. Bonds have slumped for the past three months as the Reserve Bank of India, which cut interest rates three times in the first half, switched from an easing bias to supporting the plunging rupee. That’s created a buying opportunity, according to Sundaram Asset Management Co.
The yield on the 7.16 percent bonds due May 2023 fell five basis points, or 0.05 percentage point, to 8.55 percent as of 10:47 a.m. in Mumbai. The rate has dropped 41 basis points in three days. The three-month advance in yields is the longest such run for benchmark 10-year notes since August 2010, data compiled by Bloomberg show.
“Growth is clearly a concern and the latest data only affirm it,” said Srinivasa Raghavan, Mumbai-based executive vice-president of treasury at Dhanlaxmi Bank Ltd. “The central bank is having to deal with the currency weakness too. The incoming RBI governor has a task at hand.”
Raghuram Rajan, currently chief economic advisor in the finance ministry, takes over the top job at the central bank on Sept. 5. The RBI raised two interest rates and tightened the supply of cash in the banking system in July. A surge in yields after the cash squeeze prompted the monetary authority to announce a plan to buy long-dated debt.
Government notes will rebound as the central bank reverses its tightening measures amid the deepening economic slowdown, Dwijendra Srivastava, the Mumbai-based fixed-income head at Sundaram Asset, India’s best-performing debt-fund manager, said in an interview last week.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell one basis point to 9.57 percent, data compiled by Bloomberg show.