Bonds completed their best week in a month on speculation the central bank will further cut interest rates as economic growth and inflation slow.
Benchmark 10-year yields were near the least in a week after the government on Thursday said inflation slowed to an 11- month low. Bonds also gained after an official said the government won?t borrow more than planned even after it unveiled two stimulus packages to spur growth. ?Investors? bias is shifting towards debt securities as it remains unclear when concerns over slowing growth will recede,? said S. Srikumar, chief debt trader at state-owned Corporation Bank in Mumbai. ?The slowing inflation is only helping that cause. A rapid decline in yields is only inevitable.?
The yield on the 8.24% note due April 2018 this week fell 59 bps to 5.60% at the close.
Meanwhile, the rupee strengthened as strong gains in local shares buoyed hopes for fresh capital inflows, while the dollar?s slide against other major currencies overseas helped sentiment. It closed at 48.78/80 per dollar, 0.5% stronger than Thursday?s close of 49.03/04. Inflation has more than halved from a 16-year high of 12.91% in August as a global recession drove down prices of oil and other commodities.
Wholesale prices climbed 5.24% in the week to January 3 from a year earlier, after gaining 5.91% the previous week, the commerce ministry said. Bonds pared gains on speculation investors sold to make room for new securities offered at a government auction. India sold as planned Rs 4,000 crore of the 7.56% bonds due 2014, Rs 3,000 crore each of the 8.24% notes maturing in 2018 and a new 30-year security.
