Yields fall most in 3 weeks on inflation hopes

Governemnt bonds advanced, with the 10-year yield falling the most in three weeks on speculation the recent decline in oil prices will help slow inflation from a nine-month high.

Brent crude oil prices have retreated 5.5 per cent in August following July's 16 per cent plunge. That cuts import costs for India, which gets about three quarters of its oil from abroad. The Reserve Bank of India held interest rates unchanged at an August 4 policy review after consumer-price gains accelerated to 5.40 per cent in June, near his target of 6 per cent by January. The rupee was steady Thursday. "Oil's drop can ensure inflation remains subdued," said Vijay Sharma, executive vice-president for fixed income at PNB Gilts Ltd in New Delhi. "That will create room for the central bank to cut rates once more before the year ends." The yield on the notes due May 2025 fell three basis points, the biggest drop since July 14, to 7.81 per cent in Mumbai, according to prices from RBI's trading system. It can drop to 7.65 per cent by December 31, Sharma predicts.