By Khushi Malhotra and Dharamraj Dhutia
MUMBAI (Reuters) – Indian government bond yields declined in March, with the 10-year benchmark bond yield posting its steepest monthly fall in 10 months, as aggressive liquidity infusion and growing bets of an imminent rate cut boosted investor appetite.
The yield on the 10-year note ended at 6.5823% on Friday, compared with its previous close of 6.6022%. It slid 15 basis points in March, the biggest decline in 10 months.
For the year, the 10-year yield plunged 47 bps, its biggest such move in five years.
Indian debt markets are closed on March 31 and April 1 for local holidays.
Investor demand picked up in March amid the Reserve Bank of India’s aggressive liquidity infusion, which has helped narrow the banking system’s liquidity deficit.
The deficit is at 130 billion rupees ($1.52 billion), the lowest since December 15 and down from 1.6 trillion rupees at the end of February.
Better-than-expected inflation data also supported sentiment as it pushed up expectations of lower interest rates, with a Reuters poll of economists predicting cuts in April and August.
The central bank is widely expected to lower rates at its policy decision on April 9, with the overnight index swap market pricing in more aggressive easing than previously anticipated.
“In a situation where inflation stays comfortable and growth has become a focal point, there is an expectation now (that) the rate cut cycle will be deeper than the earlier expected,” said Kruti Chheta, a fund manager at Mirae Asset Management.
The RBI, she added, is expected to stay accommodative by continuing liquidity infusion to support credit growth as well as delivering rate cuts and this is likely to trigger further buying in government bonds.
Indeed, foreigners’ holdings of bonds included in global indexes has topped 3 trillion rupees for the first time as investors stepped up purchases ahead of the expected rate cuts. ($1 = 85.4550 Indian rupees)
(Reporting by Khushi Malhotra and Dharamraj Dhutia; Editing by Savio D’Souza)
