MUMBAI: Indian federal bond yields inched higher on Monday as concerns over lined-up debt supplies and liquidity tightness as a result of expected advance tax outflows offset the positive sentiment due to lower US yields and global crude oil prices.
The bond yield is broadly seen in a 8.25 percent to 8.32 percent range during the day, traders said.
Total volumes on the central bank's electronic trading platform were a moderate 23.8 billion rupees ($532 million).
"Yields were largely flat early on, despite the announcement of the state-loans sale, but are inching up now," said Debendra Dash, a fixed income dealer with Development Credit Bank.
Five Indian states will raise a total of 45.25 billion rupees via 10-year loans on June 7, the central bank said in a statement on Friday.
"The lined-up supplies and advance tax outflows is keeping the market subdued. The 10-year bond yield may hold in a 8.27 to 8.31 percent band today," Dash added.
Corporates will begin paying quarterly advance taxes due by mid-June, which is expected to tighten systemic liquidity. The central bank's policy review on June 16 would also keep traders cautious as it is widely expected to raise rates by 25 bps.
Traders will also look to sell debt acquired at Friday's $2.7 billion auction, but prices are expected to move in a tight range after last week's rally.
The 10-year yield had tumbled 19 basis points last week, its biggest weekly fall in a year, on weak economic data and comments by a finance ministry official that yields needed to come down.
The benchmark five-year swap rate and the one-year rate were both up 5 bps at 7.91 percent and 7.97 percent, respectively.
The 5-year OIS had shed 31 bps last week, while the 1-year rate dropped 29 bps. The 5-year against 1-year OIS spread turned negative in late May, inverting the curve. The OIS curve is expected to stay negative at least until the policy. Traders will now await details of this week's $2.7 billion bond sale due after market hours on Monday for further direction.
They, however, said drop in US yields on Friday and lower global crude oil prices will prevent a very sharp rise in local yields.
The benchmark US 10-year notes yield was trading at 2.9932 percent in Asia, unchanged from late New York trade on Friday.
Brent crude slipped toward $115 a barrel on Monday on concern about demand after disappointing jobs data from top consumer United States, but a softer dollar and political upheaval in the Middle East limited losses.
Copyright Reuters, 2011
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