RBI rate cut hopes boost demand for govt bonds; 10-year yields at 7-year low

The Indian bonds continued to trade firmer for sixth straight session Wednesday as investors speculate that the Reserve Bank of India (RBI) will lower its key interest rate at the October 4 monetary policy decision.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 1 basis point to 6.931 percent (break 7 percent mark for the first time in nearly 7 years), the super-long 30-year Treasury yield also dipped nearly 1 basis point to 7.141 percent and the short-term 1-year note yield slid 2 basis points to 6.637 percent by 07:00 GMT.

According to Reuters, Indian sovereign bonds had gained for five consecutive sessions through yesterday, posting their longest winning streak in two months. Local bonds have rallied after the U.S. Federal Reserve maintained status quo, and expectations of a slowing domestic inflation boosted possibilities of more than one rate cut in India.

India’s central bank and finance ministry officials are due to meet tomorrow to decide the borrowing calendar for fiscal second half that begins October 1. India is expected to borrow 2.45 trillion rupees on a gross basis through bonds in October-March. The RBI will auction four bonds worth 140 billion rupees on Sep. 30, which includes 80 billion rupees of the 7.61% 2030 note. The RBI will also auction 91-day and 364-day treasury bills worth 130 billion rupees today, Reuters reported.

Meanwhile, the Sensex rose 0.11 percent or 30.80 points to 28,257.37 and Nifty-50 futures traded 0.71 percent higher or 61.75 points at 8,792.75 by 07:00 GMT.