Indian federal bond yields hit fresh 13-month highs on Friday as jitters on imminent tightening of central bank's easy monetary policy stance grew ahead of policymakers' meet later in the day. The yield on the 10-year benchmark bond ended at 7.72 percent after rising as high as 7.74 percent, a level last seen in late October 2008, according to Thomson Reuters data.
It had ended at 7.64 percent on Thursday. Volumes were moderately high at 97.05 billion rupees ($2.1 billion) at the central bank's reporting platform. "News about the meeting sparked concerns of policy tightening as early as this weekend," said a trader, adding, "the auction cut-offs coming in much above expectations, further dampened the sentiment".
Earlier on Friday, India's central bank Governor Duvvuri Subbarao's evening meeting with Finance Minister Pranab Mukherjee fuelled speculation that the bank may tighten monetary policy earlier than expected to stem rising prices.
However, after the meeting, Subbarao said only the country's macroeconomic situation was discussed in the meeting. The seven-year paper on offer, as part of the 90-billion rupees federal bond sale, was only partly sold. Traders said the auction results reflected a lack of market appetite for debt as there was too much uncertainty about the monetary policy.