Indian sovereign bonds rallied on Monday, extending gains for a fourth day after weaker-than-expected economic growth in the September quarter raised hopes for policy measures from the central bank at its December meeting .

After falling by nine basis points (bps) in the previous session, the yield on the benchmark 10-year bond fell another four basis points on Monday to close the session at 6.71%, the level the lowest since February 2022.

In fact, yields have lost as much as 15 basis points over the past four sessions and are expected to see their best annual performance in four years. Between January and today, benchmark bond yields have lost 47 basis points. This compares to a 15 basis point decline recorded in 2023 and increases of 87 basis points and 59 basis points recorded in 2022 and 2021, respectively.

Despite the strong US dollar and rising Treasury yields dampening the appeal of emerging market assets, Indian bonds remained largely resilient thanks to the inclusion of the foreign bond index. Inclusion in JPMorgan’s flagship index has attracted capital inflows to the tune of $15 billion so far this year. Strong demand from local investors, such as insurance companies and pension funds, also weighed on the recovery.

Meanwhile, economists at Goldman Sachs Group and UBS lowered their full-year growth outlook after September quarter GDP fell short of their estimates on Friday.

Even if growth momentum were to slow this quarter, economic growth was well below consensus and our expectation of 6.5% year-on-year, UBS wrote in a note.

“We believe that a high real policy rate and slowing growth could allow the RBI to cut its policy rate by 75 basis points over the coming months, despite FX weakness,” wrote Tanvee Gupta Jain, chief economist for India at UBS.

The significant drop in GDP, along with the strength of the US dollar, pushed the rupee down further. The local currency lost 21 paise on Monday to hit a new record high of 84.70.

With Monday’s loss, the local currency has lost nearly 2% over the past six months and had the worst performance among Asian currencies after the South Korean won.