MUMBAI: India's benchmark 10-year bond yield hit a more than 1-1/2 year low on Friday, extending a rally to a fourth week, on the back of a continued slump in global oil prices and on hopes of a sharp drop in inflation.
India is due to release data at 1200 GMT showing consumer inflation in November falling to 4.5 percent, the lowest since the data was released in 2012.
Easing inflation would reinforce expectations the Reserve Bank of India would cut interest rates as early as its next policy review in February.
"The undertone of the policy gave a sense on the possibilities of a rate cut either in the Feb policy or maybe before the Feb policy," said Laxmi Iyer, chief investment officer, Kotak Mutual Fund. "My sense is there's a 25 bps rate cut almost priced in the current yield curve. So maybe we'll see another 5 basis points.
It's not really a surprise because the undertone of the monetary policy was reasonably positive, so that's what markets are reacting to." The benchmark 10-year bond yield ended down 4 basis points at 7.83 percent, after falling as low as 7.82 percent, a level last seen on July 15, 2013.
It had closed at 7.87 percent on Thursday.
For the week, the 10-year bond yield fell 11 basis points, as traders bet on hopes of a rate cut as early as February.
Gains were helped after Brent crude slipped on Friday to below $63 a barrel, its lowest since July 2009, dragged down by persistent concerns over a global supply glut and a sluggish demand outlook.
In the overnight indexed swap market, the benchmark 5-year rate ended 2 bps lower at 7.10 percent. The 1-year rate eased 1 bp to 7.73 percent.
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