India’s benchmark bond rises to its highest level in two weeks on bets on rate cuts

India’s government bond hit a two-week high on Wednesday as belief grew that the central bank will cut interest rates at its policy meeting next week.Bonds have risen three times in a row after Reserve Bank of India Governor Sanjay Malhotra told local media that recent macroeconomic data has not limited the scope for a rate cut. The Indian tariff panel will meet from December 3 to 5.

On that day, the ten-year yield reached 6.4934%, the lowest level since November 12. On Tuesday, the interest rate ended at 6.4984%. Bond yields rise when prices fall.
“We expect a rate cut from the RBI; the question is whether it will come in the December policy or later,” said Kruti Chheta, fund manager and fixed income analyst at Mirae Asset Investment Managers (India). “Commentary from the RBI will be crucial in understanding the central bank’s position.”

Bullish momentum in U.S. Treasury bonds is also boosting sentiment, traders said. U.S. yields have fallen about 13 basis points over the past four sessions as investors position themselves for a rate cut and a dovish stance from the Federal Reserve.

The focus now is on India’s July-September GDP data due Friday, with economists predicting 7.3% growth in a Reuters poll. Stronger-than-expected growth could temper rate cuts, while a downside surprise could fuel calls for further cuts, traders said. Traders are also monitoring the progress of a possible trade deal with Washington. A breakthrough could impact India’s growth prospects and in turn the RBI’s easing path, they said.PRICES

Indian overnight yields fell on Wednesday on rising interest rate cuts and firmer US government bonds.

The one-year OIS ends flat at 5.42%, while the two-year OIS fell 1 basis point to 5.4150%. The five-year interest rate fell by 2 basis points to 5.6850%. ($1 = 89.2050 Indian rupees) (Reporting by Khushi Malhotra; Editing by Rashmi Aich and Mrigank Dhaniwala)