MUMBAI: Indian bond yields edged lower on Wednesday, tracking slight gains in the rupee, in a session marked by tight ranges ahead of the conclusion of the US Federal Reserve meeting later in the day that could result in a roll-down of its monetary stimulus.
The rupee could be hit should the Fed decide on an early, or swifter, end to the quantitative easing programme, which in turn could pressure bonds, according to traders.
The rupee has hovered near its record low hit last week, hurt by concerns about foreign outflows from emerging markets such as India, which has prompted heavy selling of local currency debt by overseas investors.
In a reprieve, foreign funds turned net buyers of local debt on Monday, though that was for only $22.93 million worth of debt, after having sold $4.7 billion in the 18 preceding sessions. However, they sold $100 million on Tuesday.
"Statement saying they (Fed) will continue with withdrawal could be short-term negative on the rupee as markets tend to over react to any seemingly adverse news," said Aniruddha Iyer, assistant vice president for fixed income at Quant Capital.
The benchmark 10-year bond yield closed down 2 basis points (bps) at 7.26 percent. It moved in a range of 7.26 percent to 7.28 percent during the session.
Total volume on the central bank's electronic trading platform was at a low 307.10 billion rupees compared with the average 600 billion rupees.
The rupee ended at 58.71/72 per dollar, not far from its record low of 58.98 reached last Tuesday.
The Fed is due to release its policy statement at 1800 GMT, followed by Chairman Ben Bernanke's news conference at 1830 GMT.
On Thursday, India is also set to auction 420.22 billion rupees ($7.15 billion) in unused government debt limits to foreign investors on June 20.
The benchmark 5-year OIS rate ended down 2 bps at 6.95 percent, while the 1-year rate closed 1 bp lower at 7.20 percent.
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