Indian bond yields eased on Friday after US Federal Reserve Chairman Ben Bernanke said the Fed could pause at some point in its 22-month rate raising campaign.
Dealers said a drop in the price of oil had also encouraged the market, as that combined with a pause in US rate hikes would take pressure off the Reserve Bank of India to raise rates. "People expect the RBI to stay put for a while," said one trader at a foreign bank.
The yield on the benchmark 10-year bond stood at 7.40 percent after dipping to 7.385 percent in early trade. It closed on Thursday at 7.42 percent, well above last week's three-month low of 7.30 percent following a central bank decision to keep rates steady.
Bernanke said the US economy was poised slow and that the Fed's policy panel may opt for a hiatus even if inflation risks were elevated, making the market cut bets that rates would rise again in June after an expected hike in May.
India's central bank said at its rate review last week that it would pay more attention to international factors when setting policy.
Oil fell towards $70 a barrel, extending a four-day fall from a record high. India imports two-thirds of its oil.
The central bank said on Thursday it would mop up excess liquidity from the banking system by resuming its market stabilisation scheme (MSS) after nearly four months.
It raised the notified amount for weekly treasury bill auctions by 25 billion rupees ($555 million). The amount for 91-day t-bills went up by 15 billion rupees while the amounts for 182- and 364-day t-bills went up by 10 billion rupees each.
One dealer said the market had been nervous about the MSS announcement, expecting higher amounts to drain more liquidity, and so prices had gained in relief.