India's federal bond yields ended higher on Friday as traders lightened their positions after the supply of long-end bonds at the government auction ahead of a truncated week. Supply of 130 billion rupees ($2.4 billion) of bonds on Friday saw good demand, traders said.
"The traders don't want to carry any position ahead of the two macro economic triggers amidst a holiday shortened next week," said Shakti Satapathy, a fixed income strategist with AK Capital. Crucial macro economic data points- the factory data for September and wholesale inflation data for October- are scheduled to be released next week, for cues on policy direction. A statement by the government that it is considering a proposal to raise the limit for investment by foreign institutional investors (FIIs) in government and corporate debt, failed to cheer the market as traders preferred to wait for any firm announcements.
The benchmark 10-year bond yield rose 3 basis points to 8.22 percent, after trading in an 8.19-8.22 percent range during the day. Yield has risen 2 basis points on the week. Trading volumes were at 119.45 billion rupees ($2.19 billion), lower than the usual 280 billion rupees in a usual session.
Bond dealers are also closely watching cash conditions with rising swap rates indicating liquidity may tighten in the days ahead. Repo bids with the central bank rose to 874.6 billion rupees, its highest in seventh sessions. India's 1-year OIS rate was flat at 7.77 percent while the benchmark 5-year OIS rate rose 2 basis points to 7.15 percent. Bond market is expected to be ranged till January given the uncertainty about the exact quantum of slippage on borrowings, traders said. A senior finance ministry official said earlier this week, the government may borrow at least 200 billion rupees more this fiscal year. India had been scheduled to borrow a total of 5.69 trillion rupees for the year.
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