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India 10-year bonds advance to four-month high on rate outlook

LiveMint logoLiveMint 04-06-2014 Divya Patil

Mumbai: Indian 10-year government bonds rose, pushing the yield to a four-month low, after the Reserve Bank of India (RBI) signalled it could ease monetary policy if consumer-price gains slow more than anticipated.

Should disinflation be faster than expected, it will provide headroom for an easing of the policy stance, the RBI said in a statement on Monday after it left the repo rate at 8%, as predicted by all 38 economists surveyed by Bloomberg. Tightening won’t be warranted if consumer-price inflation stays on course to slow to 8% in January 2015 and 6% a year later, the RBI said.

“The statement from the RBI that there is headroom to ease if inflation slows is driving the bonds higher,” said Paresh Nayar, the Mumbai-based head of currency and money markets at FirstRand Ltd. “Monday’s statement not only gives comfort of no rate hikes, but also highlights a possibility of rate cuts.”

The yield on the 8.83% government notes due November 2023 declined 1 basis point, or 0.01 percentage point, to 8.59% as of 10:41am in Mumbai, according to prices from the RBI’s trading system. It fell to 8.57% earlier, the lowest level since 21 January.

Consumer-price inflation has stayed below 9% for the first four months of the year after topping 11% in November, official data show.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined 5 basis points to 8.21%, data compiled by Bloomberg show.

The rupee was little changed at 59.385 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, slipped 1 basis point to 7.28%, data compiled by Bloomberg show.

Three-month offshore non-deliverable forwards declined 0.1% to 60.30 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars. Bloomberg

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