India’s 10-year bonds gained for the third day, pushing the yield to a six-week low, on expectation inflows to emerging markets will rise following the US Federal Reserve’s larger-than-forecast interest-rate cut.
Funds in India’s banking system have increased, boosting demand for government debt, as overseas investors’ purchases of local shares this year exceeded those for all of 2006. The Fed’s half a percentage point rate cut on September 18 will prompt investors to seek higher returns in the world’s second-fastest growing major economy, said S Srikumar, chief of fixed-income at Corporation Bank Ltd. in Mumbai.
?I am bullish on bonds,? Srikumar said. ?India will be a beneficiary of the Fed’s move and cash in the system will remain in surplus in the long term. That should keep persistent pressure on yields to decline.?
The yield on the 7.99% note due July 2017 fell 1 basis point to 7.82% at the close of trading in Mumbai, according to the central bank’s trading system. The price rose 0.05, or 5 paise, per 100-rupee face amount to 101.15. A basis point is 0.01 percentage point.
The 10-year yield may fall as low as 7.75% in the coming days, Srikumar said. Global funds bought $9.5 billion more Indian stocks than they sold this year, compared with net purchases of $8 billion in 2006, according to data from the Securities and Exchange Board. The inflows helped the rupee gain above 40 against the dollar for the first time in nine years today.
India’s gross domestic product grew 9.3% in the three months ended June 30, second only to China during the period among the world’s 20 largest economies.
Bonds also gained as a report tomorrow may show inflation, according to the median estimate of 15 economists in a Bloomberg survey, slowed to 3.28% in the week ended September 8, the slowest pace since December 2002. Wholesale prices rose 3.52% in the previous week.