India’s 10-Year Government Bond Hits Two-Week High on Rate Cut Hopes

India's benchmark government bond hit a two-week high on Wednesday on growing conviction that the central bank will cut rates at its policy meeting next week.

Bonds have risen for three straight sessions on buying after Reserve Bank of India Governor Sanjay Malhotra told local media that recent macroeconomic data has not limited room to ease rates. India's rate-setting panel meets on December 3-5.

On the day, the benchmark 10-year yield settled at 6.4934%, its lowest since November 12. It ended at 6.4984% on Tuesday. Bond yields rise when prices fall.

"We expect a rate cut from the RBI; the question is whether it comes 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 key to understanding the central bank's stance."

Bullish momentum in U.S. Treasuries is also buoying sentiment, traders said. U.S. yields have dropped about 13 basis points over the past four sessions as investors position for rate cut and dovish tilt from the Federal Reserve.

Focus is now on India's July-September GDP data due on Friday, with economists forecasting 7.3% growth in a Reuters poll.

A stronger-than-expected growth print could temper rate-cut bets, while a downside surprise may reinforce calls for further cuts, traders said.

Traders are also tracking progress on a potential trade deal with Washington. A breakthrough could influence India's growth outlook, and in turn the RBI's easing path, they said.

RATES

India's overnight index swap rates eased on Wednesday, on rising rate cut bets and firmer U.S. Treasuries.

The one-year OIS ends flat at 5.42%, while the two-year dipped 1 basis point to 5.4150%. The five-year fell 2 bps to 5.6850%.