MUMBAI: Indian bonds rose for a fourth straight session on Friday, with yields posting their biggest weekly fall since early January, on hopes upcoming inflation data would support the case for more rate cuts and that the central bank would buy more debt.
The rise this week came amidst heavy volumes, with foreign investors continuing to snap up Indian debt as part of a rally in riskier assets globally, as easier monetary policies worldwide increase liquidity.
Hopes that the Reserve Bank of India will buy more debt to inject liquidity into the financial system have also supported bonds. The central bank bought nearly 100 billion rupees of bonds this week via open market operations.
Investors are now gearing up for two key economic indicators - the consumer price inflation data on Monday and wholesale price inflation data on Tuesday.
India's headline wholesale inflation is expected to have risen 5.5 percent in April from a year ago, a Reuters poll shows, marking the slowest pace since November 2009, although some analysts expect it to be lower.
"The market is expecting low inflation numbers, with WPI below 5.5 percent and a CPI lower than 9.75 percent, supporting the rate cut cause ahead," said Sandeep Bagla, executive vice president at ICICI Securities Primary Dealership.
India's benchmark 10-year bond yield fell 1 basis point to 7.59 percent, after touching 7.56 percent, its lowest since early July 2010.
The benchmark yield has fallen 15 bps in the week, the biggest fall since the week ended Jan. 6, according to Thomson Reuters data.
Bonds displayed a muted reaction after government data on Friday showed the country's industrial production rose 2.5 percent in March from a year earlier.
Volumes continued to remain heavy at 930.65 billion rupees, higher than the average 500-600 billion rupees seen in April, dealers said.
Aggressive cut-offs at the 150-billion-rupee ($2.7 billion) bond auction on Friday also reflected strong buying interest among various investors.
Hopes of more bond buys by the central bank come in the backdrop of a cash squeeze in the banking system of over 1 trillion rupees in the last four trading sessions.
Foreign investor interest in debt should also support bonds. They have invested $1.39 billion so far this month, more than the $992.2 million seen in the whole of April, according to regulatory data.
The benchmark five-year swap rate ended down 6 bps at 6.84, after falling to 6.80 percent during the session, marking the lowest since Sept. 26, 2011.
The one-year swap rate ended down 1 basis point at 7.19, after falling to 7.15 percent in the day, its lowest since Jan. 7, 2011.
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