Indian federal bond yields inched up on Friday as traders awaited fresh supplies from a $2.2 billion sale later in the day, and a rise in US treasury yields overnight also dampened sentiment. At 10:30 am (0500 GMT), the yield on the 10-year benchmark bond was at 7.42 percent, above Thursday's closing of 7.38 percent.
Volumes were a low 9.65 billion rupees ($208 million) on the central bank's trading platform. "The sentiment is bearish and trading will remain range-bound," said Roy Paul, deputy general manager of treasury at Federal Bank. He also said the market is likely to bid at higher yields at the auction.
The central bank will auction the 7.02 percent bonds maturing in 2016 and 8.28 percent 2032 bonds for 30 billion rupees each and the 6.90 percent bonds maturing in 2019 for 40 billion rupees.
Traders said bonds would be range-bound ahead of the auction results with the 10-year in the range of 7.39-7.47 percent. A continuous flow of supplies has pushed the 10-year bond yield up 217 basis points so far in 2009. The government has sold 3.15 trillion rupees of bonds since April. Managing India's heavy government borrowing in a non-disruptive way is a major challenge for the central bank, as hardening bond yields run counter to its low rate policy needed for lifting growth, the Reserve Bank of India (RBI) said on Thursday.
The market is also awaiting the central bank's monetary policy next Tuesday where it is widely expected to keep the benchmark lending and borrowing rates unchanged, a Reuters poll showed last week.
"At Tuesday's meeting, beyond expectations of a more hawkish tone, we could see a 1 percentage point hike in the statutory liquidity ratio (SLR) that would signal imminent policy rate hikes," DBS said in a note on Friday. SLR is the minimum share of bank deposits to be held in approved government securities.
US Treasury debt prices retreated on Thursday as a stock market rally drew investors away from safe-haven government debt. [US/]
In interest rate futures on the National Stock Exchange (NSE), the December contract was implying a yield of 8.0567 percent, below its previous close of 8.0862 percent. The benchmark five-year interest rate swap at 6.90/7.00 percent, from previous close of 6.95/99 percent3.