Bonds rise on rate cut hopes

However, the RBI expects inflation to rise again to 3.5-4.5% in the 2nd half of the FY18

Bonds rallied on Tuesday, as chances of a rate cut by the Reserve Bank of India (RBI) strengthened after the soft inflation print on Monday.

Retail inflation dipped to 2.17% in May, far lower than the RBI’s own target of keeping inflation at the mid-point of 4%. The central bank, however, expects inflation to rise again to 3.5-4.5% in the second half of the financial year. Of course, this is lower than what the central bank was expecting earlier. 

The yields on the benchmark 10-year bond fell to 6.47% intra-day, its lowest since it was introduced in May, but climbed