MUMBAI: Indian federal bond yields inched lower on Thursday, with some bargain buying creeping in on the back of losses in global equities and lower oil prices, while investors nervous about faltering US debt talks sought safe-haven government debt.
By 10:25 a.m. (0455 GMT), the 10-year Indian benchmark bond yield was down 1 basis point (bp) at 8.44 percent. It had risen to 8.48 percent during trade on Wednesday -- its highest since Oct. 1, 2008.
The yield, which had shot up 15 bps on Tuesday following an unexpectedly hefty 50 bps rate increase by the central bank, is seen in a 8.40-8.46 percent band during the day, traders said.
Total volumes on the central bank's electronic trading platform were at a low 12.85 billion rupees ($291 million) compared to the normal 25-35 billion rupees dealt in the first hour and half of trade.
"The problems in the euro zone and US are helping sentiment for bonds today. The S&P is below its 50-and 100-day moving averages," the head of fixed income at a private bank said.
The MSCI index of Asian stocks ex-Japan was down 1.2 percent, while the domestic share market was trading down 1.1 percent.
US oil fell for a second session on Thursday as the United States struggled to reach an agreement on raising the debt ceiling to avoid a default, while the first release of crude stocks in the country unexpectedly boosted inventories.
"There is a general risk-off mode in global markets. Equities are lower, oil has fallen, so all factors are bonds positive, so domestic factors a bit on the back-burner now," a senior dealer with a foreign bank said.
Traders, however, said a $2.7 billion debt by government on Friday will keep the downside for bonds yields in check. They will also watch the weekly food and fuel price data due around noon (0630 GMT)for further direction.
The US 10-year benchmark note was trading at 2.97 percent in Asian trade, down 1 bp from late New York trade when it had risen 2 bps.
"The swap curve continues to stay inverted due to growth concerns at the longer end. I expect the negative spread to stay around current levels, unless there is any major news," another senior dealer with a foreign bank said.
The one-year overnight indexed swap rate was trading down 2 bps at 8.33 percent, after vaulting to 8.36 percent on Wednesday, its highest since Oct. 7, 2008.
On Tuesday, after the bigger-than-predicted rate rise, the 1-year swap rate had risen 31 bps in its biggest single-day rise since late October 2008.
The benchmark 5-year rate was down 4 basis points at 7.64 percent. It had risen 19 basis points on the policy day.
The negative spread between the two rates stands at 69 basis points, the highest intra-day spread since Oct.7, 2008 and above 67 bps at previous close, further inverting the rate curve in a sign that indicates investors are worried about slowing growth.
Copyright Reuters, 2011
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