India Bond Yield Is Near Lowest Since 2009 Amid Rate-Cut Wagers

  • Global funds raise holdings by 67.4 billion rupees this month
  • One-year interest-rate swaps near lowest level since 2010

India’s 10-year bond yield held near its lowest level since 2009 as foreign funds continued to pile into local debt and speculation mounted the central bank will cut interest rates as early as next week.

Overseas investors bought 4.4 billion rupees ($66 million) of government and corporate notes on Monday, taking inflows this month to 67.4 billion rupees. With the Federal Reserve leaving U.S. borrowing costs unchanged, the odds of a “front-loaded rate cut” by the Reserve Bank of India in October have risen, Radhika Rao, Singapore-based economist at DBS Bank Ltd., wrote in a note Tuesday. New Governor Urjit Patel is scheduled to review monetary policy on Oct. 4.

The yield on sovereign bonds due September 2026 was little changed from Monday’s closing level of 6.79 percent, which was the lowest end-of-day rate since June 2009, according to prices from the central bank’s trading system. The cost to lock in one-year borrowing costs was steady at 6.44 percent, near a six-year low of 6.43 percent reached mid-July.

“There was some amount of profit booking after the recent rally,” said Harish Agarwal, a Mumbai-based fixed-income trader at FirstRand Ltd. “Growing demand from foreign investors hunting for higher yields means the Indian 10-year yield can drop further to 6.5 percent by the end of December.”

An auction of 46.2 billion rupees of debt quotas to foreigners to enable them to buy sovereign bonds attracted bids worth 68.2 billion rupees on Monday, according to a statement on the Bombay Stock Exchange’s website.
 
The rupee rose 0.2 percent in a fourth day of gains, to 66.4875 a dollar, prices from local banks compiled by Bloomberg show. It has advanced 0.7 percent this month.

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