MUMBAI: Indian federal bond yields nudged up on Thursday, mirroring higher global crude oil prices and US yields, and as traders pared position a day before a $2.7 billion debt sale.
At 10:55 a.m. (0525 GMT), the 10-year benchmark bond yield was 1 basis point (bp) higher at 8.34 percent, after trading in a 8.33-8.35 percent range so far.
Total volumes on the central bank's electronic trading platform were at a slightly lower 20.25 billion rupees ($456 million) compared with the usual 30 billion-40 billion rupees dealt in the first two hours of trade.
"US yields are slightly higher currently, oil is also holding above $97 a barrel and we have the weekly price data due today, so yields will continue to trade with an upside bias," the head of fixed income desk at a private bank said.
"The 10-year bond yield could stay in 8.32-8.37 percent band today, but weekly inflation data will be the key for clarity on further direction," he added.
Brent crude climbed above $114 a barrel, supported by a more-than-projected drop in US crude stocks and expectations that China's monetary tightening cycle may be nearing its end.
The weekly food and fuel price data due around noon (0630 GMT) would be crucial for providing cues on broader inflation ahead of the industrial data due next Tuesday and monthly inflation on July 14.
These data would help cement views for the likely action by the central bank at its policy review on July 26 where the market expects the Reserve Bank of India to raise key rates by a quarter percentage point.
US Treasury prices rose on Wednesday as Portugal's downgrade to junk status a day earlier revived fears Europe's debt problems could cascade, spurring safe-haven demand for low-risk government bonds.
However, the benchmark 10-year US note was trading at 3.12 percent in Asian trade, up 2 bps from late New York trade on Wednesday.
The benchmark five-year Indian swap rate and the one-year rate were 2 bps each at 7.72 percent and 8.05 percent, respectively.
Traders said a sharp rise in swap rates was unlikely due to easy cash conditions in the banking system.
On July 2, the redemption of the 9.39 percent, 2011 bond saw 387.372 billion rupees of inflows.
Banks borrowed a net 137.95 billion rupees from the central bank's liquidity adjustment facility on Wednesday, compared with 145.80 billion rupees in the previous session, and much below 1.05 trillion rupees borrowed late last week, reflecting the easing in cash conditions.
Copyright Reuters, 2011
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