Yields dip to 6.43% on low inflation numbers

Benchmark 10-year yields fell to a one-month low after a commerce ministry report today showed wholesale prices posted their smallest increase since at least 1990. The yield on the 6.05 per cent note due February 2019 slid 17 basis points to 6.43 per cent at close, according to RBI’s trading system. The price climbed Rs 1.17 per 100-rupee face amount to 97.23.

Bonds rose for a second day on speculation record-low inflation will allow the central bank to slash borrowing costs next week for the third time this year. The Reserve Bank of India (RBI) may cut the repurchase rate at its meeting on April 21, according to a Bloomberg News survey.

The central bank may also need to cap yields amid unprecedented debt sales as the country spends more to spur economic growth from the slowest pace in six years. “Economic indicators are pointing to the need for further monetary policy measures,” said S Srikumar, chief debt trader at state-owned Corporation Bank in Mumbai. “Bond yields are going to be on a downward trajectory.”

The wholesale-price index gained 0.18 per cent in the week to April 4 from a year earlier, after rising 0.26 per cent the previous week, the government said.

RBI Governor Duvvuri Subbarao has slashed interest rates five times since mid-October. He last reduced the repurchase and reverse-repurchase rates on March 5 by half a percentage point each to 5 per cent and 3.5 per cent respectively, both at their lowest since they were introduced in 2000.

The government plans to raise a record Rs 2.41 lakh crore from debt sales in the first six months of the fiscal year that started April 1, according to its borrowing calendar.

The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, was little changed. The rate, a fixed payment made to receive floating rates, was at 5.49 per cent versus 5.48 per cent yesterday.