Indian 2023 Bonds Complete Weekly Gain After RBI’s Easing Signal

India’s sovereign bonds due 2023 capped a weekly gain, pushing the yield to an eight-month low, after the central bank said it could ease monetary policy.

Quicker than anticipated disinflation “will provide headroom for an easing of the policy stance,” the Reserve Bank of India, which sees inflation as measured by the consumer-price index at 8 percent in January 2015 and 6 percent a year later, said in a statement on June 3. Governor Raghuram Rajan left the benchmark repurchase rate at 8 percent for a second straight meeting the same day, as predicted by all 38 economists surveyed by Bloomberg News. India sold 160 billion rupees ($2.7 billion) of bonds as planned at an auction today.

The yield on the 8.83 percent notes due November 2023 slumped 13 basis points, or 0.13 percentage point, this week and one basis point today to 8.51 percent in Mumbai, according to prices from the central bank’s trading system. That’s the lowest close for benchmark 10-year rates since Oct. 11.

“The RBI hinting at the possibility of easing has cheered bond markets,” said Paresh Nayar, the Mumbai-based head of currency and money markets at FirstRand Ltd. “While 8.50 percent is a psychological level, an uptick in yields could attract more buyers.”

Benchmark securities due in a decade climbed the most in a year in May on optimism Prime Minister Narendra Modi will boost efforts to curb inflation and revive the economy after his Bharatiya Janata Party won the biggest parliamentary majority in 30 years. The 10-year yield will fall to 8.39 percent by year-end, a Bloomberg News survey of 10 banks and mutual funds showed this week after the RBI’s rate decision.

Barclays Plc expects the RBI to cut the key interest rate by 50 basis points in the second half of 2014. Rajan has raised it by 75 basis points since taking charge in September to rein in consumer-price gains. The CPI rose 8.59 percent in April from a year earlier, the fastest pace among Asia’s top 10 economies.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, slumped 22 basis points this week and one basis point today to 8.16 percent, data compiled by Bloomberg show. That’s the lowest level since July.

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