MUMBAI: Indian government bond yields ended lower for a second session on Wednesday as the fall in inflation continued to cheer but a slightly higher-than-expected trade deficit in June raised concerns about the current account balance at a time of uncertainty over global oil prices, pulling yields off lows.
A surge in gold imports widened India's trade deficit to an 11-month high of $11.76 billion in June, after a central bank decision to ease tough gold import rules led to a 65 percent annual rise in overseas purchases of the yellow metal.
Traders said the Reserve Bank of India's announcement on Tuesday exempting long-term bonds raised for the infrastructure sector from reserve requirements had little impact as it had already been announced in the federal budget last week.
Analysts say bonds could trade in range as investors monitor the impact of monsoon rains ahead of the central bank's policy review in early August and ahead of the expected announcement of a new benchmark 10-year bond as early as next week.
"Market is awaiting the announcement of a new 10-year paper which could happen next week. The progress on monsoon and the likely central bank policy stance are other key things in focus," said Harish Agarwal, a fixed income dealer with First Rand Bank.
"The old 10-year paper may remain in a 8.65 to 8.85 percent range until the new paper is announced," he added.
The benchmark 10-year bond yield closed at 8.72 percent, down 2 basis point on the day.
Traders will also continue to monitor global crude oil prices and movements in the rupee for direction.
September Brent crude prices edged above $107 a barrel on Wednesday as data from China showed its economy grew faster than expected.
In the overnight indexed swap market, the benchmark five-year swap rate closed 2 bps higher at 7.87 percent while the one-year rate ended up 1 bp at 8.39 percent.
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