Indian federal bond yields ended flat on Friday after the central bank set aggressive cutoffs for its weekly debt auction, coming off near three-month highs on concerns about the fiscal deficit and tight liquidity. Worries about India's fiscal deficit are growing amid disruptions during the winter session of parliament, which saw both houses adjourned for a second successive day over the government's move to open up multi-brand retail to foreign investors.
Traders believe the outlook for bonds could remain weak, especially amid uncertainty on whether the central bank will decide to buy bonds via open market operations (OMO) to ease a high cash deficit in the banking system. Repo borrowings from the central bank have remained above the 1 trillion rupee mark for eight consecutive sessions as of Friday.
India will also detail its July-September GDP on November 30, which will be closely watched by investors to see whether the economy slows further. The benchmark 10-year bond yield ended unchanged at 8.23 percent. It rose to 8.24 percent in the session, a level last seen on September 2. For the week, yields rose 4 basis points, a third week of rise in the last four.
Bond yields had risen on Thursday after a senior government source said that the government was likely to miss its fiscal deficit aim of 5.3 percent, potentially resulting in another 350-400 billion rupees of extra borrowing. Some positive news came on Friday when the RBI sold 130 billion rupees of bonds during the session. The cutoff yield of the 8.20 percent 2025 bonds came in at 8.3388 percent, lower than 8.3427 percent forecast in a Reuters poll. The benchmark 5-year OIS rate fell 1 basis point to 7.18 percent, while the 1-year OIS rate was steady at 7.76 percent.