Indian Bonds Gain on Speculation Central Bank Will Lower Rates

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Indian sovereign bonds rose, pushing the 10-year yield to a one-week low, on speculation the central bank will add to two interest-rate cuts this year as inflation slows.

Gains in consumer prices eased to a four-month low in April, data showed last week. The Reserve Bank of India is expected to lower borrowing costs at its next review on June 2, the Press Trust of India cited Finance Minister Arun Jaitley as saying in a report on Sunday. Bonds also tracked advances in U.S. Treasuries as reports showing weakness in the U.S. economy damped bets of an increase in rates by the Federal Reserve, according to FirstRand Ltd. India’s rupee was steady on Monday.

“There’s an expectation the RBI will cut rates and we see that happening on the policy date,” said Paresh Nayar, head of currency and money markets at FirstRand in Mumbai. “There’s also some guidance from the U.S. Treasury markets.”

The yield on the 8.4 percent notes due July 2024 fell five basis points, or 0.05 percentage point, to end at 7.90 percent in Mumbai, prices from the RBI’s trading system show. It is the lowest close since May 11.

Global funds, which bought a record net $26 billion of Indian corporate and sovereign debt in 2014, have added another $6 billion to their holdings this year. Higher U.S. rates will reduce the allure of emerging markets like India.

In the currency market, the rupee fell 0.3 percent, snapping three days of gains, to close at 63.7250 a dollar, according to prices from local banks compiled by Bloomberg. The S&P BSE Sensex index, India’s benchmark equity gauge, advanced for a second day.

Sentiment in Indian markets was also buoyed by an improvement in the nation’s fiscal deficit. The shortfall narrowed to 4 percent of gross domestic product in the year ended March 31, compared with the government’s target of 4.1 percent, an official statement showed on Sunday.

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