Indian federal bond yields eased on Friday after results of the $2.2 billion bond auction beat market expectations. The cut-off yields at the federal bond sale were set lower than market expectations and the auction was fully covered. The yield on the 10-year benchmark bond closed at the day's low of 7.32 percent, below Thursday's closing of 7.35 percent.
Volumes were a heavy 64.65 billion rupees ($1.4 billion) on the central bank's trading platform. "The market sentiment is more or less flat. It's not improved or deteriorated," said Sujoy Kumar Das, head of fixed income at Bharti Axa Investment Managers.
"The cut-offs have come close to market levels, but I don't read much into that," he added. The government is yet to sell 740 billion rupees worth of bonds in the current financial year ending March 2010 to fund its yawning fiscal deficit projected to touch 6.8 percent of gross domestic product.
Dealers said they would watch inflation data for October due on Saturday for further cues after industrial output grew a faster-than-expected 9.1 percent in September from a year earlier adding to the debate over when the government should pull back from its aggressive policies to drive growth. "There is a lot of liquidity chasing risk-free assets, so I expect yields to soften even from the current levels and the 10-year bond should be lower by 10-15 basis points from current level by year-end," Das said.
Banks are flush with funds and parked 969.30 billion rupees in the reverse repo window on Friday. In interest rate futures on the National Stock Exchange (NSE), the December contract was implying an yield of 7.9823 percent, above its previous close of 7.9550 percent. The yield implied in the March contract was at 8.2830 percent, down from its previous close of 8.3499 percent. The benchmark five-year interest rate swap closed at 6.67/70 percent, from its 6.69/73 previous close.