Indian bond yields fell another 10bps to......>

INDIA: Indian bond yields fell another 10bps to 7.2% following the RBI's 5-1

decision on April 5 to keep interest rates on hold. The RBI also cut its H1FY19

inflation forecast to 4.7-5.1% from 5.1%-5.6% and cut its inflation forecast for

H2FY19 to 4.4% from 4.5-4.6%.

-USDINR also strengthened slightly on the news and is hovering around 65. The

decision and resulting market moves chime with our view that the recent weak

rupee combined with high bond yields ware not justified by the fundamentals. See

Weak Rupee, Bonds Not Justified By India Econ (For Full Story See Main Wire At

09:10 GMT 03/16).

-Both metrics we look at to assess the attractiveness of emerging market bonds

point to further downside in yields for the Indian 10-year. One metric is the

spread of the 10-year bond yield adjusted for inflation and default risk (as

measured by the 10-year credit default swap), and the other is the spread of the

10-year over the 2-year bond yield. The first measures is currently at 175bps,

significantly higher than most of its peers, and the second measure is currently

at 44bps, suggesting there is room for the curve to flatten further.