MUMBAI: Indian bonds edged higher on Thursday on the back of a fall in global crude oil prices and some bargain-hunting, with the benchmark 10-year bond yield ending a range-bound month just marginally stronger.
Although India's measures to raise investment limits for foreign institutional investors helped sentiment, the introduction of a new 10-year bond and the tight liquidity weighed on markets later in the month.
Traders are now looking ahead at the central bank's monetary policy review on Tuesday for direction, with the 140-billion-rupee debt sale on Friday also being a near-term factor.
The Reserve Bank of India is likely to leave its key interest rate unchanged and won't ease policy until early next year on fears food inflation will spike if monsoon rains are below average, according to a Reuters poll.
"Some consolidation being seen in markets today. The new 10-year may hold in a 8.45 to 8.55 percent range until the policy review," said Harish Agarwal, a fixed income dealer with First Rand Bank.
"RBI is expected to keep rates on hold but we could see some clarity on the liquidity management plans at the policy review," he added.
The existing benchmark 10-year bond yield ended down 1 basis point at 8.72 percent. For the month the yield closed down 2 basis points.
The new 10-year paper, the third most-traded security, ended 1 bp lower at 8.50 percent.
Bond markets got a boost after Brent crude slipped to around $106 a barrel as higher OPEC output and disappointing demand in the United States outweighed tensions in the Middle East, Africa and Ukraine.
The new 10-year bond was aided by bargain-hunting following sharp falls on Wednesday after India's unexpected decision to sell a new tranche of the 10-year bond on Friday, worth 90 billion rupees ($1.50 billion).
In the overnight indexed swaps market, the benchmark 5-year swap rate closed down 1 bp at 7.89 percent while the 1-year rate ended at 8.37 percent, down 2 basis points.
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