MUMBAI: Indian government bonds edged down on Tuesday, tracking US treasuries and a weaker rupee, but expectations that the government would raise the foreign investment limits in debt capped losses and kept yields in a tight band.
US treasuries yields stabilised on Monday after a study from the San Francisco Federal Reserve renewed concern there would be an early Federal Reserve rate increase.
The Indian rupee posted its biggest single-day fall in more than a month on Tuesday, as investors covered short dollar positions after a Federal Reserve study made investors reassess prospects for higher US interest rates.
"This week, I expect bonds to be in a narrow range unless there's a decision on additional limits for FIIs, which will be a positive trigger," said N.S. Venkatesh, treasurer at IDBI Bank in Mumbai.
Expectations have been abound that the government would raise the debt investment limits for foreign institutional investors (FIIs), given that they have almost exhausted their $25 billion quota.
The yield on the 14-year benchmark 2028 bond, which was the most traded on the electronic platform on Tuesday, ended up 2 basis points at 8.67 percent.
The 2024 10-year bond yield, which became the benchmark last month, also closed up 2 bps on the day at 8.52 percent.
Earlier in the day, supply from bond sales worth 96.05 billion rupees ($1.58 billion) by state governments also weighed on bonds.
Volumes on the electronic trading platform fell to 187.7 billion rupees compared with 339.95 billion rupees on Monday.
In the overnight indexed swap market, the benchmark five-year swap rate ended up 2 bps at 8.00 percent, while the one-year rate closed unchanged at 8.44 percent.
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