MUMBAI: Indian government bonds ended flat for a third straight session on Friday as caution set in ahead of Prime Minister Narendra Modi's maiden budget next week, although broader sentiment remained positive due to easing inflation worries.
Benchmark 10-year bond yields fell 9 basis points for the week, snapping a three-week run of rising yields, as the arrival of monsoon rains and falling crude oil prices eased some concerns about higher food prices.
The benchmark yield ended flat at 8.66 percent.
Easing liquidity tightness due to month-end government spending and rupee injections from the central bank's dollar-buying intervention also supported sentiment.
Traders expect bonds to remain range-bound until the budget is unveiled on July 10, with investors awaiting key details about the fiscal deficit target and government borrowing numbers for the remainder of the fiscal year ending in March 2015.
"Bonds head into next week with a positive bias, although a break under 8.60-8.62 percent for the 10-year is unlikely," said Prasanna Patankar, deputy manager director at STCI Primary Dealership.
Traders cited little impact from India's 150 billion rupees ($2.51 billion) auction worth of debt on Friday, as cut-offs were largely in line with market expectations. Besides the budget, investors will also closely track global crude prices and the monsoon rains.
Liquidity may also become a factor, with dealers citing expectations of around 500 billion rupees in outflows due to monthly tax payments and payments tied to Friday's auction.
In the overnight indexed swap market, the benchmark five-year swap rate fell 1 basis point to 7.81 percent, while the one-year rate ended flat at 8.33 percent.
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