(Reuters) - Indian government bond yields ended lower for a seventh consecutive session on Tuesday, with benchmark yield at lowest in nearly two months, as easing inflation raised bets that the central bank will slow down its pace of policy tightening.
The benchmark Indian 10-year government bond yield ended at 7.2613%, lowest level since Sept. 21, after closing at 7.2866% on Monday. The yield had declined for the last six sessions, dropping by an aggregate 19 basis points.
"Inflation may have peaked and could move below 6% mark soon, so the central bank's rate hike cycle will come to an end, and all these factors have led to continued purchases in local bonds," said Raju Sharma, head fixed income at IDBI Mutual Fund.
India's annual retail inflation eased to a three-month low of 6.77% in October, helped by a slower rise in food prices and a higher base effect. The reading was slightly higher than the 6.73% forecast by economists in a Reuters poll, but below the September reading of 7.41%.
Market participants expect the next reading to fall further which could provide room to the Reserve Bank of India to go slow on rate hikes, especially in its next policy in December.
Barclays expects November inflation to fall to 6.5%, with the central bank likely taking a pause after hiking repo rate by 35 bps next month.
The RBI has already raised rates by 190 bps since May, to 5.90%, as it battles to rein in inflation that has stayed above its 2%-6% target band for 10 straight months.
QuantEco Research expects the central bank to hike rates by 35 bps in the upcoming policy review, before opting for a pause for reassessment.
Easing oil prices, further aided sentiment as India is one of the major importers of the commodity and declining oil prices could curb inflation. The benchmark Brent crude contract was below $93 per barrel, after easing 3% on Thursday.
Meanwhile, Puneet Pal, PGIM India Mutual Fund's fixed income head recommended investors to remain invested in government bonds until the yield spread between government papers and corporate debt widens. He expects the benchmark bond yield to trade in 7.20%-7.50% range over the next few months.