Indian bonds will rebound next quarter as a deepening economic slump causes the first bout of deflation in more than three decades, Barclays Plc said, Bloomberg reported.
Investors should buy debt maturing in 2018 in April as the Reserve Bank of India halves its benchmark overnight borrowing rate from a record low of 4 percent to revive demand, said Sailesh K. Jha, Singapore-based senior regional economist at Barclays Capital. The notes, which are set for their biggest quarterly slide on record, may also advance as slumping demand for loans prompts banks to invest more cash in debt, he said.
"Bonds in India will rally over the next four to six months as falling prices allow the central bank to cut rates," Jha said in an interview on Feb. 20. "With growth slowing significantly, commodity prices falling and more fuel price cuts likely on the way, deflation may emerge in May and persist until at least October."
The yield on the most-traded 8.24 percent bonds due in 2018 has risen 1.17 percentage points this year to 6.42 percent, and may rise to 6.75 percent by March 31, according to the median estimate of six analysts surveyed by Bloomberg. That would be the biggest quarterly increase on record in benchmark yields, according to data compiled by Bloomberg.
Barclays Capital, a unit of the U.K.'s third-biggest bank, predicts yields will fall to 5.1 percent in the coming quarters, tracking a decline in consumer prices that may begin as early as April. India hasn't faced deflation since the fiscal year ended March 1976, data available on the central bank's Web site show.
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