MUMBAI: Indian federal bond yields closed flat on Monday amid prevailing caution ahead of potential policy reform measures from the government and the central bank's monetary policy review next week.
Traders are eyeing whether the government will announce new action, such as an increase in diesel prices or allowing more foreign investment, after Pranab Mukherjee was announced as India's new president on Sunday.
Reforms are seen as critical for India to meet its fiscal deficit target of 5.1 percent.
Views on whether or not the central bank will lower interest rates on July 31 is mixed, making investors more even hesitant to build large positions, traders said.
Global factors, especially oil prices, will be important in the week ahead, traders said, in the absence of domestic cues.
"In the near-term market will tract overseas cues especially oil prices, and significant fall in oil prices will help the 10-year bond to rally to near 8 percent levels," said Debendra Dash, a fixed income trader with Development Credit Bank.
"10-year bond will move in the range of 8.00-8.09 percent this week," he added.
The benchmark 10-year bond yield closed steady at 8.07 percent after trading in a range of 8.05 percent to 8.07 percent during the day.
Total volume on the central bank's electronic trading platform was at a moderate 199.30 billion rupees ($3.6 billion).
Brent crude dropped on Monday as part of a sell-off in global risk assets sparked by worries Spain would need a sovereign bailout.
The euro hit its lowest level in more than two years, while India's BSE stock index dropped 1.6 percent to its biggest daily percentage fall since mid-May.
India's benchmark 5-year OIS rate dropped 7 basis points to 6.85 percent, after earlier falling as low as 6.84 percent to its lowest level this year. The 1-year rate fell 4 bps to 7.57 percent.
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