India’s Bond Yield at 3-1/2-Year Low on Rate-Cut Speculation

India’s benchmark bond climbed, sending yields to the lowest level since November 2009, on speculation slowing inflation will spur the central bank to further reduce interest rates.

The wholesale-price index rose 4.89 percent from a year earlier in April, the smallest increase in 41 months, official data showed last week, prompting Reserve Bank of India Governor Duvvuri Subbarao to say the data will be factored into decisions at the next meeting. The RBI, which has lowered the repurchase rate by 75 basis points to 7.25 percent this year, is scheduled to review policy next on June 17.

“The overall view for bonds remains bullish given the lower inflation trajectory and increasing possibilities of rate cuts,” said Paresh Nayar, head of money-markets and currency at FirstRand Ltd. in Mumbai.’’

The yield on the 8.15 percent notes due June 2022 fell seven basis points, or 0.07 percentage point, to 7.34 percent in Mumbai, according to the central bank’s system. That is the lowest level for a benchmark 10-year bond since November 2009.

“We certainly will take note of the softening of inflation and the external payments situation in the next mid-quarter policy,” Subbarao said in Frankfurt on May 14.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell two basis points to 7.08 percent, according to data compiled by Bloomberg.

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