Indian bonds fell on Friday and were close to wiping out gains for the year as stop-losses got triggered on continued concerns about political instability and doubts about future interest rate cuts. The benchmark 10-year bond yield has risen 11 basis points this week, the biggest increase since the week ended March 1 when the 2013/14 budget had broadly disappointed debt investors.
"The current selling is a mixture of instability in further fiscal reforms followed by the year-end portfolio realignment that would create space in accommodating the fresh issuance calendar," said Shakti Satapathy, a fixed income analyst at AK Capital.
The results of the open market operations by the central bank came largely in line with expectations. The Reserve Bank of India bought 60.28 billion rupees ($1.11 billion) of government bonds through open market operations (OMOs) on Friday, as against the notified 100 billion rupees. The benchmark 10-year bond yield ended 3 basis points higher at 7.96 percent, the highest level since January 3.
Bonds are at a risk of wiping out gains for the year, with yields not far off the 8.00 percent level at the end of 2012. The benchmark five-year swap rate closed up 1 bp at 7.25 percent, while the one-year rate ended 1 bp lower at 7.53 percent.