India's benchmark 10-year bond yield dropped for the fourth straight week on Friday as a slowdown in the economy and signs of easing inflation strengthened expectations the central bank will start focusing on supporting growth sooner than expected.
The benchmark 10-year bond yield, however, closed 1 basis point higher on the day at 8.53 percent, mainly on profit-taking. It fell 12 basis points on the week, after a 17 basis point drop last week. Total volumes on the central bank's electronic trading platform were high at 117.90 billion rupees ($2.25 billion), compared to the usual 90-100 billion rupees dealt on an average day.
Bond prices have been rising on growing expectations the Reserve Bank of India will announce measures to improve liquidity and to support growth at its policy review next week, traders said. "The market is tired. It has been bullish for some time now so I expect a 8.60 to 8.50 percent band for the next few days," said Anoop Verma, an associate vice president with Development Credit Bank.
Traders will now await factory output data due around 0530 GMT on Monday and the headline inflation number on Wednesday for cues. India's industrial output likely shrank at an annual rate of 0.5 percent in October, its first decline in over two years, a Reuters poll showed.
However, on Thursday, Times of India reported that the factory output declined by 7 percent in October, dragged down by a fall in the capital goods sector, the first time it moved into negative territory since June 2009, quoting an unnamed source. India cut its full-year growth forecast amid slowing domestic and global demand, with officials warning the government was facing a serious balance of trade problem and will have a tough time meeting its fiscal deficit target.
Asia's third-largest economy is now expected to grow by 7.25 to 7.5 percent in the fiscal year ending March, the government said in a mid-year review, down sharply from an estimate of 9 percent issued in February. The benchmark five-year swap closed up 3 bps at 7.07 percent and the one-year rate ended steady at 7.79 percent.