Indian bond yields edge up tracking crude, auction eyed

MUMBAI: Indian federal bond yields edged up on Wednesday, tracking global crude oil prices and US yields in Asian trade, with position trimming among traders before Friday's $2.7 billion debt sale also adding to the upmove.

The 10-year benchmark bond yield was up 2 basis points (bps) at 8.36 percent, after trading in a narrow range of 8.34-8.37 percent so far.

Total volumes on the central bank's electronic trading platform were slightly lower at 21.55 billion rupees ($485 million) as compared with 35 billion-45 billion rupees usually traded in the first two and half hours.

"US yields were lower overnight, the euro also slightly weaker but oil prices are higher, so bond yields have inched up, but the rise should be capped by the euro's fall," a senior trader with a foreign bank said.

Brent crude edged up on Wednesday, rising for a second straight session on expectations of higher demand in the months ahead and tighter US inventories, but concerns about moderating economic growth in China and euro zone debt woes kept a lid on gains.

New worries that the most severe elements of Europe's debt crisis are in danger of spreading, including Portugal's first ratings downgrade to junk, rekindled US Treasuries' safe-haven appeal on Tuesday and ended a five-day selloff.

However, in Asian trade, US Treasury prices fell as profit-taking emerged after solid gains the previous day. The 10-year benchmark US note was at 3.14 percent, up 2 bps from late New York trade.

The euro stayed on the back foot in Asia on Wednesday, having suffered a steep fall against the Swiss franc and the dollar after Moody's slashed Portugal's credit rating to junk status.

"Everyday there is only around 2-3 bps movement in bond yields. Since yields are already 2 bps higher, I do not expect much upside during the day," said Anoop Verma, an associate vice president with Development Credit Bank.

Traders said industrial data due on Tuesday and monthly inflation data on July 14 would be eyed for cues on the likely action by the central bank at its policy review on July 26.

Traders will also take cues from the results of a 120-billion-rupee ($2.7 billion) bond auction on Friday. The central bank is due to auction 100 billion rupees of treasury bills later in the day.

The benchmark five-year swap rate was steady at 7.76 percent, while the one-year rate rose 3 bps to 8.07 percent.

Traders said easy liquidity would, however, prevent a very sharp rise in swap rates.

On July 2, 387.372 billion rupees flowed into the system due to the redemption of the 9.39 percent, 2011 bond.

Banks borrowed a net 145.80 billion rupees from the central bank's liquidity adjustment facility on Tuesday, compared with 285.05 billion rupees in the previous session, but much below 1.05 trillion rupees borrowed last week, reflecting some easing in cash conditions.