Indian federal bonds lost ground on Monday with many investors on the sidelines on growing expectations that the central bank could raise interest rates at its upcoming policy review.
The yield on the actively traded 7.37 percent 2014 bond ended at 7.0408 percent, having edged up from Friday's 7.0377 percent close.
"Volumes are low. There is no fresh buying as participants are expecting interest rates to go up," said a dealer at a state-run bank.
Many analysts expect the Reserve Bank of India to raise the key short-term reverse repo rate by 25 basis points to 5.25 percent at its quarterly policy review on October 25 to contain inflationary pressures in the quickly growing economy.
The narrowing interest rate differential between the United States and India is also putting upward pressure on local rates as the US federal funds rate has risen to 3.75 percent, following 11 increases by the Federal Reserve since June 2004.
Traders said sentiment was edgy as the rupee weakened 0.85 percent to a 10-month closing low of 44.76/77 per dollar on worries about India's expanding trade deficit and dollar bids from importers and funds.
Foreign fund investment in local stocks also appears to be slowing, with data showing overseas portfolio investors sold a net $129.4 million of Indian shares on Thursday.
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