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

India’s 10-year bond yield stayed near the lowest level since 2009 on speculation easing inflation will make room for the central bank to add to this year’s three interest-rate reductions.

The wholesale-price index climbed 4.89 percent from a year earlier in April, the smallest increase in 41 months, official data showed last week. Reserve Bank of India Governor Duvvuri Subbarao said the data will be factored into decisions at the next meeting. The RBI, which last lowered its repurchase rate by 25 basis points to 7.25 percent on May 3, is scheduled to review its policy next on June 17.

“Recent macroeconomic data have reinforced our expectation of monetary easing by the RBI,” analysts at Barclays Plc including Singapore-based Rohit Arora wrote in a research note today. “We remain bullish on government bonds as key catalysts for the recent rally still stay intact.”

The yield on the 8.15 percent notes due June 2022 touched 7.31 percent today, the least for a 10-year note since November 2009, before closing at 7.35 percent in Mumbai. Barclays predicts it will decline to as low as 6.80 percent in the next six months.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point to 7.09 percent, according to data compiled by Bloomberg.

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