MUMBAI: Indian government bonds fell slightly on Friday on profit-taking and caution ahead of Federal Reserve Chair Janet Yellen's speech at Jackson Hole later in the day, although broader sentiment remains supported by recent strong foreign buying.
Foreign institutional investors bought a net $2.65 billion dollars in government bonds on Wednesday, according to the latest available data, which some traders said was the biggest on record.
Analysts said India might soon have to raise its foreign investment limit quota of $30 billion, with J.P.Morgan predicting the increase would be of 250 billion rupees ($4.13 billion).
"We expect the FII limit to be raised further, as it is now full due to recent large inflows," J.P.Morgan said in an email to clients.
The 8.40 percent 10-year bond yield, which became the benchmark this week, rose by 1 basis point over its previous close to end at 8.52 percent.
Still, the bond ended flat for the week, given some concerns the Federal Reserve may start raising interest rates earlier than expected.
Yellen could give more clues on her thinking when she delivers a speech later in the day.
The Reserve Bank of India's announcement that it would conduct more frequent term repos auctions failed to have much of an impact given the central bank will not inject additional liquidity into markets.
In the overnight indexed swap market, the benchmark five-year swap rate closed 2 bps lower at 8.01 percent.
The one-year rate ended 2 bps lower at 8.44 percent.
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