Indian government bonds rose for a second consecutive session on Friday after the central bank said the dollar window for oil companies would remain open, although debt markets posted their first weekly fall in three on fears of rising inflation. The Reserve Bank of India said on Friday any tapering of its dollar window would be in a "calibrated" manner, reassuring markets which had been jolted in the morning when Bloomberg TV reported that the central bank was considering closing that window, citing unnamed sources.
Bond investors closely watch rupee movements given the plunge in the currency earlier this year spurred the central bank to raise short-term interest rates and contributed to its decision to raise the repo rate in a bid to curb inflationary pressures. The benchmark 10-year government bond yield ended down 5 basis points on the day at 8.55 percent.
The yield fell 6 bps for the week, snapping two weeks of advances. Absence of a weekly auction next week and the upcoming policy review on October 29 will keep bonds in a thin range next week, dealers said, adding that the rupee would be watched closely for direction. Separately, Reuters reported India's plans to launch trading of government bond futures within the next two months as part of efforts to deepen its financial markets, according to several sources involved in discussions with the central bank. The one-year overnight indexed swap rate ended down 5 basis points at 8.41 percent, while the five-year rate closed flat at 8.20 percent.