MUMBAI: Indian government bonds rose on Monday for a second consecutive session on hopes data later in the day would show easing inflation and after a 65.82 billion rupee ($1.08 billion) open market bond sale was largely within expectations.
Sentiment remains positive in bond markets despite some volatility in emerging markets given expectations that easing consumer inflation would allow the Reserve Bank of India (RBI) to ease rates next year.
Brent crude oil fell below $88 a barrel on Monday, its lowest in almost four years, a boost for India, since it imports nearly two-thirds of its requirements.
Data later on Monday was expected to show consumer price inflation (CPI) eased to 7.2 percent last month from 7.8 percent in August. That would make it the lowest since the CPI indicator was introduced in 2012.
"There is demand in the market at these levels despite the supply," said Debendra Dash, a fixed income dealer with DCB Bank.
"And, if CPI is lower, the 10-year yield may go below 8.40 percent on Tuesday," Dash said.
The 10-year bond yield closed down 4 basis points on the day at 8.42 percent compared with 8.46 percent on Friday.
The total volumes reported on the electronic trading platform rose to 325.8 billion rupees, as against 301.51 billion rupees on Friday.
Bonds also gained as the OMO sale came within expectations. The RBI said it sold bonds worth 65.82 billion rupees ($1.08 billion) at its open market bond sales, as against 100 billion rupees notified.
A stronger rupee also benefited bonds. The Indian rupee ended up at 61.0950/1050 compared with its Friday close of 61.34/35 as the dollar took a beating in Asia.
In the overnight indexed swap market, the benchmark five-year swap rate closed 11 basis points lower at 7.60 percent, while the one-year rate ended 3 basis points lower at 8.32 percent.
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