India’s 10-Year Yield Holds Near 15-Month Low on Rate-Cut Bets

India’s 10-year bond yield held near a 15-month low on speculation the central bank will cut its benchmark interest rates next week as sliding oil prices cool inflation.

Brent crude dropped 2.4 percent to 75.90 a barrel, easing costs for Asia’s third-largest economy that imports almost 80 percent of its oil. Consumer prices in India rose 5.52 percent in October from a year earlier, the slowest pace since the index was created in January 2012, according to official data.

“The sharp decline in crude oil prices is a major source of comfort for inflation management and markets,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. The bonds dropped earlier in response to the central bank’s bond sales announcement, he said.

The yield on the notes due July 2024 was at 8.15 percent, little changed from yesterday’s 8.14 percent, which was the lowest level for benchmark 10-year debt since August 2013, according to prices from the Reserve Bank’s trading system. The yields earlier rose to as high as 8.17 percent in Mumbai.

The Reserve Bank of India plans to sell 120 billion rupees ($1.9 billion) of notes via an open-market auction on Dec. 1, it said in a statement after trading closed yesterday. Bonds rose in the past three days on optimism falling oil prices will help curb inflation and prompt the RBI to cut interest rates.

In the currency market, the rupee fell less than 0.1 percent to close at 61.8750 per dollar, according to prices from local banks compiled by Bloomberg. Three-month offshore non-deliverable forwards were little changed at 62.69, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.

Oil Imports

Government bonds have rallied this quarter, with the yield on the 2024 securities dropping 37 basis points, as a 32.5 percent retreat in Brent crude prices since June helped curb inflation for India, which imports about 80 percent of its oil.

Slowing price gains have fueled speculation Reserve Bank Governor Raghuram Rajan will reduce the key repurchase rate after having raised it three times between September 2013 and January to 8 percent.

The market is expecting the central bank to sound dovish on inflation and interest rates at its Dec. 2 policy meeting, said Harish Agarwal, a fixed-income trader at FirstRand Ltd. in Mumbai. A Bloomberg survey of 15 bank dealers and mutual-fund managers shows the central bank will keep the rate unchanged next week, with 11 of the participants predicting the first reduction in the January-March quarter.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell three basis point to 7.83 percent, data compiled by Bloomberg show. They’ve dropped 63 basis points this quarter.

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