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India bond yield, 1 year OIS at over 6 week low as inflation eases

indian-bondMUMBAI: Indian benchmark federal bond yields and the short-end swaps fell to an over six-week low after data showed headline inflation plummeted in November, reinforcing expectations of a policy rate cut as early as January.


India's headline inflation rate, measured by wholesale prices, hit a 10-month low, rising 7.24 percent in November from a year ago, compared with 7.45 percent in October.


"Today's move is essentially on the inflation number, and the 10-year yield could drop to 8.10 percent on Monday on rate cut expectation," said Ashok Gautam, global head of markets at Axis Bank.


If the 10-year yield drops to 8.10 on Monday, it would touch an over four-month low, last seen on July 26, as per Thomson Reuters data.


According to a new Reuters poll of 41 economists, the central bank is expected to keep interest rates on hold in its mid-quarter monetary policy review on Tuesday, but views are split on a cut in the cash reserve ratio (CRR).


Gautam expects the 10-year yield to rise to 8.18-8.22 percent next week if the central bank keeps rates and the CRR on hold.


The benchmark bond yield fell 2 bp to end at 8.14 percent. The bond yield shed 3 basis points during the week.


India's short-end 1-year OIS rate ended 4 bp lower at 7.62 percent while the benchmark 5-year OIS ended 1 bp up at 7.11 percent.


The RBI governor, Duvvuri Subbarao, had said in October there was a "reasonable likelihood" of further policy easing in January-March quarter when inflationary pressures are expected to cool off.


Before the release of inflation data, yields were in 1 bp band, although the central bank belied expectations of an announcement of open market operation (OMO) after market hours on Thursday.


Traders still expect an OMO announcement post market hours on Friday.


Copyright Reuters, 2012


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