Indian federal bond yields were unable to sustain an early fall on Friday, paring the move on weaker-than-expected demand at a bond auction and on uncertainty over the government's borrowing needs for 2010/11. The yield on the benchmark 10-year bond ended at 7.68 percent, off an intra-day low of 7.63 percent, and only slightly below Thursday's close of 7.70 percent.
"After the auction, the mood is bearish again," said a trader at a private bank. Bond yields had opened lower, with demand supported by a drop in US Treasury yields on rising risk aversion and growing surplus funds with local banks, traders said. There was also some relief that Friday's 80 billion rupee bond auction was the last one of 2009/10's a record 4.51 trillion rupees gross market borrowing programme, although higher-than-expected cut-off yields sparked late selling.
Traders said the market had mostly priced in expected higher official interest rates, and was waiting for the government to outline its borrowing needs in the 2010/11 budget at the end of the month. In interest-rate futures on the National Stock Exchange, the March contract implied a yield of 8.1855 percent and the June contract yielded 8.1636. Benchmark five-year swaps ended at 7.02/06 percent from a previous close of 7.10/14 percent.