MUMBAI: Indian government bonds gained for a second consecutive session on Monday as global crude prices slumped after Japan unexpectedly slipped into recession in the third quarter, reinforcing expectations for lower domestic interest rates.
Data last week showing consumer inflation at its lowest on record has raised expectations the Reserve Bank of India could cut the repo rate as early as its February review.
These expectations came even as RBI officials had warned recently about inflation. Earlier in the day, RBI deputy S.S. Mundra said it was not easy to predict if the moderation in inflation would continue.
Meanwhile, strong foreign buying - totalling $722.7 million so far this month - has also underpinned domestic bonds as global investors chase higher yields at a time of easy monetary policies elsewhere.
"Deflation in Japan will lead them to continue printing money and hence keep global liquidity flush," said Bekxy Kuriakose, head of fixed income trading at Principal PNB Asset Management.
The benchmark 10-year bond yield closed down 4 basis points at 8.18 percent.
Traders expect the 10-year bond yield to trade in an 8.15 to 8.25 percent range this week.
Brent crude fell by more than $1 towards $78 a barrel on Monday after Japan, the world's fourth-biggest crude importer, slipped into recession and as Saudi Arabia reiterated the oil price should be left to supply and demand.
Traders said the fall in U.S. treasury yields also aided sentiment for debt.
In the overnight indexed swaps, the benchmark five-year swap rate and the one-year rate closed down 4 basis points each at 7.43 percent and 8.02 percent, respectively.
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