MUMBAI: Indian federal bond yields were largely steady on Thursday ahead of the weekly food and fuel price data at around 0530 GMT but sentiment stayed positive due to the absence of fresh debt supplies until April.
Traders said the auction of unutilised debt limits for foreign institutional investors (FIIs) next Tuesday was also supporting sentiment as they expect good demand for debt from foreign funds.
India's stock market regulator, the Securities and Exchange Board of India (SEBI), said on Tuesday the unutilised limits on long-term government debt and corporate bonds will be up for bidding on March 15.
At 10:58 a.m. (0528 GMT), the yield on the most-traded 8.08 percent 2022 bond was 1 basis point lower at 8.06 percent, while the second most-traded 8.13 percent 2022 bond was flat at 8.04 percent.
The less liquid benchmark 10-year bond yield, however, was down 3 basis points at 7.95 percent.
"Market has been largely flat so far. The weekly inflation data may provide some triggers," the chief fixed income dealer at a state-run bank said.
"Some banks have been building long positions but we are likely to see state-run banks come and sell around 8 percent levels, limiting any further downside."
Traders will also watch the industrial production data on Friday and monthly inflation data on March 14 to cement views about the likely central bank action at its monetary policy review on March 17.
India's industrial output probably rose to 2.9 percent in January from a year earlier, on higher exports and improved manufacturing sector growth, a median forecast in a Reuters poll showed.
Economists so far have been largely expecting the central bank to raise key rates by 25 basis points at its policy review next Thursday, but some market participants are now expecting the central bank to wait until its annual policy in May.
"I think the central bank may not hike rates next Thursday as inflation is showing some signs of easing and growth too is not expected to be as robust as earlier expected, so they may prefer to wait until the May policy before taking any further steps," the chief dealer said.
Indian food inflation eased in mid February following a drop in prices of vegetables and milk.
Earlier this week, Morgan Stanley lowered its growth forecast for India's GDP in the fiscal year starting April to 7.7 percent, its second cut since late January, while Bank of America-Merrill Lynch also cut its forecast for FY12 to 8.2 percent.
The government in its annual budget last week said it expects India to grow at 9 percent, plus or minus 0.25 percent in 2011/12.
"Taking any steps at this stage can hurt growth which is showing signs of some moderation, so they may want to hold off next week," a senior dealer with another state-run bank said.
Dealers said the market sentiment is likely to remain supported by the absence of bond sales until April, when the next fiscal year's borrowing is due to start.
The benchmark five-year swap rate eased 5 basis points to 7.87 percent, while the one-year swap rate fell to 7.34 percent versus 7.36 percent on Wednesday. Traders said swaps eased due to some receiving interest from banks, who were unwinding long positions.
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