Indian federal bond yields stayed in a tight range on Friday as investors were cautious about adding large positions ahead of the central bank's policy review next week, when it is widely expected to reduce rates by at least 25 basis points. The lower-than-expected core inflation print for February and the central bank chief's comments calling the recently unveiled federal budget "responsible" have raised hopes of a rate cut from the Reserve Bank of India.
However, bond yields came off the session's lows after a Standard and Poor's analyst said the slowdown in India's economic growth is less supportive for the country's sovereign credit ratings. "The broad range for next week will be 7.75 to 7.95 percent, depending on what the RBI does in the policy. Until the policy the 10-year should hold in a 7.80-7.90 range," said Harish Agarwal, a fixed income dealer with First Rand Bank.
The benchmark 10-year bond yield closed steady at 7.86 percent after moving in a 7.84 to 7.87 percent band during the day. On the week, the 10-year bond yield ended up 2 bps. Total volumes on the central bank's electronic trading platform were at a low 244.10 billion rupees ($4.5 billion) compared with the average 300-350 billion rupees in recent weeks.
The RBI cut interest by 25 bps at its last policy review in January but surprised investors with a cautious tone on monetary policy, making its stance on Tuesday equally important for investors. Overnight indexed swap rates fell across the curve, although traders attributed that to stop-losses being triggered. The benchmark 5-year swap rate closed down 3 bps at 7.16 percent while the 1-year rate ended 4 bps lower at 7.50 percent.