RBI rate-cut bets drive Indian Bond yields to lowest
Indian bonds rallied, pushing the 10-year yield to the lowest since July 2013, as the government's decision to cut rates on small savings plans was seen paving the way for the central bank to further ease monetary policy. The move by Prime Minister Narendra Modi seeks to address concerns that higher rates on government savings plans cannibalize deposits in the banking system and have prevented lenders from passing on last year's 125-basis point reduction in Reserve Bank of India's benchmark repurchase rate.
RBI Governor Raghuram Rajan, who next reviews rates on April 5, has been urging banks to accelerate transmission.
The yield on notes due January 2026 dropped three basis points to 7.49 percent as of 11:51 a.m. in Mumbai, according to prices from the RBI's trading system, headed for the lowest close for a benchmark 10year note since July 2013. The yield has fallen 29 basis points in a rally that began with the government's Feb. 29 budget decision to stick to its target of narrowing the fiscal deficit to a nine-year low.
"What's driving the markets is expectations that lower savings rates will boost policy transmission and pave the way for further RBI easing," said Ajay Manglunia, Mumbai-based head of fixed income at Edelweiss Financial Services Ltd. "The drop in bond yields points to a softer interest-rate regime in coming months."