Indian federal bond yield edged up as investors trimmed positions to accommodate 130 billion rupees worth of debt sold on Friday with trading expected to be range-bound ahead of key inflation data due around mid-October. The central bank sold government bonds at yields largely in line with market expectations.
Investors have their sights set on the inflation date due on October 15, amid rising hopes the Reserve Bank of India is moving towards cutting interest rates at its October 30 policy review. Indian banks would reduce their interest rates if the RBI cuts its key lending rate, the chief of an Indian banks' body assured the central bank governor on Friday.
Banks, however, also told the RBI they preferred a cut in the banks' cash reserve ratio, as that would reduce their cost of funds. "I am quite disappointed. They have just asked for a CRR when liquidity is comfortable. What about rate cut?," said Manish Wadhawan, managing director and head of rates at HSBC.
The benchmark 10-year bond yield closed up 1 basis point at 8.16 percent after moving in a narrow 8.15 to 8.17 percent band during the day. Yields ended the week up 1 basis point, snapping a four-week falling streak. Total volume on the central bank's electronic trading platform was at a low 157.85 billion rupees ($3 billion).
Traders expect the 10-year to remain range-bound next week, with industrial output data on Friday as a potential trigger. The overnight indexed swap rates edged up for a second day, after falling to over 2-month lows on Thursday on the back of improvement in the liquidity conditions and on hopes for rate cuts. India's benchmark 5-year OIS rate ended up 3 bps at 7 percent while the one-year rate ended 2 bps higher at 7.60 percent.