The new 10-year benchmark bond rallied after being issued in an auction on Friday, but prices for other bonds fell given continued concerns about inflation and the uncertain prospect of central bank debt purchases to relieve tight liquidity conditions. A weakening trend in the rupee on the back of renewed Federal Reserve tapering fears is exacerbating concerns about inflation and raising prospects the central bank will raise interest rates for a third time this year at its next policy review in December.
At the same time, liquidity is a concern. After the Reserve Bank of India bought 61.57 billion rupees ($984.41 million) via open market operations on Monday, traders are hoping for additional liquidity injections by the central bank, although that prospect remains uncertain. The new 10-year benchmark bond yield closed at 8.78 percent from its cut-off yield of 8.83 percent at the weekly auction. India raised 150 billion rupees ($2.38 billion) through a bond auction on Friday, including 70 billion rupees of the new 10-year benchmark bond. However, other bond prices fell.
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