MUMBAI: Indian government bonds rose for a third session on Wednesday, continuing to benefit from a rally in the rupee, although caution is expected to set in ahead of quarterly economic growth data due at the end of the week.
The rupee rose to a one-week high, on the back of dollar selling from foreign banks. Bonds have kept a close correlation with the rupee in the second half of the year after a slump in the rupee had sent yields surging in the summer.
Trading interest in government bonds has largely been centred around the new 10-year paper which was first issued on Friday and is expected to become the benchmark bond after a few issuances.
"With no major triggers, the market is experiencing a natural demand shift for the new benchmark with range-bound movement in the existing paper," said Shakti Satapathy, a fixed income analyst with AK Capital.
The new 10-year bond yield eased 5 basis points to 8.69 percent. The existing 10-year benchmark bond yield ended 4 basis points down at 9 percent.
Traders are looking ahead at gross domestic product data on Friday, which is expected to show growth likely picked up slightly in July-September on improved manufacturing activity, according to a Reuters poll.
Dealers said further bond gains were kept in check as dealers sold some debt to make way for auction bonds. India will sell 140 billion rupees ($2.24 billion) of bonds on Friday as part of its fiscal second-half borrowing programme.
In the overnight indexed swap market, the benchmark five-year swap rate closed 7 bps lower at 8.36 percent, while the one-year rate was down 7 bps at 8.47 percent.
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