Indian benchmark bond yields and swap rates recorded a fifth weekly fall, as a string of positive macroeconomic data and a respite in global commodity prices in recent weeks are seen offering elbow-room to the central bank to respond to growth concerns. Absence of supply this week and data showing state-owned banks and foreign investors purchased government debt at aggressive prices in the recent sessions aided gains, dealers said.
The Reserve Bank of India (RBI) is likely to cut interest rates next week for a third time this year, drawing comfort from a fall in inflation, a Reuters poll showed. The Indian government pitched for a rating upgrade on Thursday at a meeting with ratings agency Standard & Poor's, a top finance ministry official said, citing steps taken by it to control a high fiscal deficit and revive investments.
"I don't see the market breaching 7.70 percent levels as 25 basis point rate cut has been fully discounted," said Ashutosh Khajuria, president, treasury, at Federal Bank. Dealers expect bonds to trade in the 7.70 percent to 7.80 percent range in the week of the policy. Indian benchmark bond fell to 7.71 percent during the day, a level last seen on July 27, 2010, in a volatile session. It ended at 7.74 percent, down 3 bps from Thursday's close. Dealers said yields may fall below 7.70 percent in the event of a 25 bps rate cut if the central bank gives a dovish guidance and signals further monetary easing.
The one-year overnight interest swap (OIS) ended at 7.21 percent, from its previous close of 7.22 percent. The five-year swap rate ended at 6.95 percent, down 2 bps from its last close. State-owned banks were the major buyers of debt, with a net purchase of 52.68 billion rupees on Thursday, as per CCIL data, and foreign investors were also heavy buyers in debt on April 23 with purchases worth $411.31 million, according to a market regulatory filing.
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