Bond bulls bet on RBI’s dovish turn for rally to extend
interest-rate swaps are pricing a rate cut only in December, traders are girding for a possible shift in the Reserve Bank of India’s stance to neutral on Wednesday. They are also closely watching for any dovish signals in the authority’s commentary.
“We are definitely expecting a softer language from the RBI even as the possibility of a stance change remains evenly balanced,” said Pankaj Pathak, a fixed-income manager at Quantum Asset Management Co. “That can be the trigger for a down move in yields.”
The 10-year yield, down 34 basis points this year to 6.83%, may fall further to 6.25% by March, according to Nomura Holdings Inc., with IDFC First Bank predicting a drop to 6.50%. A continued decline may lower borrowing costs for the government, which aims to reduce the budget deficit to a five-year low this fiscal year.
Indian bonds are among Asia’s best performers this year thanks to over $16 billion of foreign inflows spurred by the inclusion into JPMorgan Chase & Co.’s emerging-market index.
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