Indian federal bond yields ended up on Friday as a partially sold $2 .4 billion securities auction hit sentiment, with the central bank directing primary dealers to pick up the unsold portion. Lingering concerns of an aggressive monetary tightening post the recent surge in food inflation number added to the selling.
India's food inflation rose for the fifth straight week to the highest in more than a year, reinforcing fears it has spilt over to broader prices and cementing expectations of a January interest rate hike. The yield on the most-traded 8.13 percent 2022 bond rose to 8.15 percent, up 2 basis points from Thursday, and moved in 8.14-8.16 percent band intraday.
The benchmark 10-year bond yield ended at 8.20 percent, up 8 basis points, having moved in a range of 8.15-8.21 percent, while the second most-traded 8.08 percent, 2022 bond yield ended at 8.18 percent, up 2 basis points from previous close. It moved in 8.17-8.19 percent band. Volumes were low at 44 billion rupees ($969 million) on the central bank's trading platform compared with around 70 billion to 80 billion rupees usually traded in a day.
The central bank is likely to schedule another round of bond purchases as it has so far bought 295.61 billion rupees under open market operations (OMO) against a 480-billion-rupee target. The Reserve Bank of India (RBI) started a bond purchase programme last month stretched over four weeks to ease the acute liquidity shortage among banks. The benchmark five-year swap rate ended unchanged at 7.88 percent, off from 7.92 percent - its highest since October 3, 2008, after moving in a band of 7.86-7.92 percent intra-day.
The one-year swap ended at 7.18 percent, its highest since October 15, 2008, and compared with Thursday's close of 7.14 percent. It moved in 7.12-7.18 percent band in the day. The Reserve Bank of India (RBI) was scheduled to sell 40 billion rupees each of 7.49 percent, 2017 bonds and 7.80 percent, 2020 bonds, and 30 billion rupees of 8.26 percent, 2027 bonds. But, the RBI had to ask primary dealers to buy 14.86 billion rupees of the 2020 bond and 7.24 billion rupees of the 2017 bond as bids received were at high levels of yields.