MUMBAI: India's federal bond yields inched lower on Tuesday as investors bought safe-haven government debt on euro zone troubles, with a fall in US yields and global oil also supporting.
The yield on the benchmark 10-year paper was at 8.31 percent, down 1 basis point from its close on Monday.
Total volume on the central bank's electronic trading platform was moderate at 24.4 billion rupees ($506 million).
"The market is seeing some buying on the back of global factors. The comments from Gokarn were also very comforting although the market still expects another rate hike in October, possibly the last," said Anoop Verma, an associate vice president at Development Credit Bank.
India faces inflation of close to 10 percent in the September-November period but price pressure should moderate from December, meaning the peak of an 18-month rate rise cycle is near, Reserve Bank of India Deputy Governor Subir Gokarn said on Monday.
The central bank had raised rates last Friday for the 12th time since mid-March 2010 and signalled more was to come, confounding expectations that it was coming to the end of its tightening cycle and putting it at odds with global peers focused on reviving weak demand.
"Every rally will have profit bookings so the market moves in short spurts. At this point you can't expect big rallies," Verma said.
US Treasury debt prices rose on Monday as fears over the euro zone debt crisis fueled safe-haven buying and investors looked for the Federal Reserve to intervene in the bond market to lower long-term interest rates.
In Asian trade, the 10-year US benchmark bond yield was at 1.94 percent, down 2 bps from late New York trade on Monday, when it had dropped 9 bps.
Traders will be eyeing the Fed's two-day meeting ending on Wednesday for direction amid market talk it will take more monetary easing measures.
Brent crude futures steadied above $109 on Tuesday, after two days of heavy losses on worries that a looming default by Greece will destabilise the global financial system, threaten global growth and pare oil consumption.
"Oil prices will provide cues on how domestic inflation would perform going ahead, so they will be monitored," a senior dealer with a foreign bank said.
The benchmark five-year swap rate and the one-year rate were both down 2 basis points each at 6.84 percent and 7.90 percent, respectively.
Copyright Reuters, 2011
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