Indian bond trade is likely to be subdued this week as investors ponder an economic boom, rising prices and a pick-up in bank credit, which are all reinforcing the view that a three-year-long monetary easing cycle is over.
"Inflation and strong credit growth will certainly weigh on the market," said Rajiv Anand, head of investments for Standard Chartered Mutual Fund, which manages 81 billion rupees in debt.
"There are not too many reasons to be long on bonds and we could definitely see a gentle drift downwards (in prices)."
Inflation, as per wholesale prices, rose for nine straight weeks to 6.21 percent for the year to January 10, well above the yield on the 10-year federal bond of 5.1350 percent on Saturday.
The rate is expected to start falling towards the month-end, but only because of the base effect. Last year, inflation started rising around late January because of firm global oil prices, making for relatively high previous year figures.
"What is more important is what is happening with the wholesale price index. Rising prices of manufactured goods and food articles are a worry," Anand said.