India 10-Year Bonds Drop as Yield at Two-Year Low Deters Buyers

  • Notes rallied after last week's RBI rate cut, market opening
  • Pimco calls for more reforms while staying overweight on bonds

India’s 10-year sovereign bonds declined as a drop in the yield to a two-year low deterred investors.

Pacific Investment Management Co. said most global and local investors want a more “material change” in reforms from the nation, which on Sept. 29 said it will allow foreigners greater access to government debt. The Reserve Bank of India surprised investors with a larger-than-estimated cut in interest rates the same day, triggering a rally that drove the 10-year yield to its lowest close since July 2013 on Monday.

The yield on the notes due May 2025 rose two basis points to 7.53 percent in Mumbai, according to prices from the central bank’s trading system. It has fallen 20 basis points in the past five days. The rupee fell 0.2 percent to 65.4150 a dollar after climbing 1.3 percent in the last five days, prices from local banks compiled by Bloomberg show.

“Markets seem to be consolidating after the recent rally,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. “The trajectory for bonds remains positive as there are no major risks in sight.”

Sharma predicts the 10-year yield to stay between 7.40 percent and 7.63 percent this quarter.

“To attract foreign investors, India simply needs to hear the messages that are being sent on opening up capital markets,” Singapore-based Luke Spajic, executive vice-president, emerging markets portfolio management at Pimco, said in an interview. The money manager is overweight Indian government bonds, which have returned 7.6 percent this year in Asia’s best performance, based on indexes compiled by Bloomberg.

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