MUMBAI: Indian federal bond yields fell on Thursday on expectation the central bank may pause on its tightening cycle.
Traders said the expectation was spurred after some news agencies quoted India's chief economic adviser, Kaushik Basu, as saying there was a case for a pause in the rate hike cycle.
The market had been pricing in a quarter percentage point rate increase when the central bank reviews policy on July 26. The Reserve Bank of India has also already raised rates 10 times over the past 15 months.
Inflation due around noon (0630 GMT) will be watched, traders said.
The wholesale price index probably rose 9.70 percent in June from a year earlier, quickening its pace from May, on rising food and fuel prices, a Reuters poll showed.
"If inflation is between 9.40 to 9.90 percent then the market will expect one hike and if it's below 9.40, then the market may think of possibility of pause," said a senior trader at a foreign bank.
Traders said coordinated bomb blasts that killed at least 17 people in Mumbai on Wednesday evening had no impact on market sentiment as they were relatively small incidents.
"These cannot be seen as attacks on India's commercial capital or on (our) markets," Home Minister Palaniappan Chidambaram told a news conference.
At 11:12 a.m. (0542 GMT), the 10-year benchmark bond yield was down 5 basis points (bps) at 8.25 percent, after easing as much as 8.24 percent. In early deals it had risen to 8.33 percent on higher US yields.
Volumes were a moderate 60 billion rupees ($1.3 billion) on the central bank's trading platform.
The benchmark five-year swap rate was down 5 basis points at 7.54 percent and the one-year rate fell 7 bps to 7.92 percent.
The negative spread between the five- and one-year swap rates was 38 bps.
The swap curve, which had first inverted on May 27, could correct with the short-end of the OIS curve easing.
US 10-year Treasuries prices slipped in Asia trade on Thursday after Moody's Investors Service warned the United States may lose its top-notch credit rating in the next few weeks if lawmakers let the government miss debt payments.
Copyright Reuters, 2011
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