Indian bond yields drop as US economic woes continue

MUMBAI: Indian federal bond yields fell on Monday as weak US jobs data rekindled fears of the world's largest economy slipping back into recession and prompted buying of safe-havens such as government bonds.

Data on Friday showed US employment growth ground to a halt in August, while the European debt crisis continued to fester with Greece and its international lenders now at odds over whether it has met conditions for a new aid tranche.

At 10:55 a.m. (0525 GMT), the 10-year benchmark bond yield was at 8.29 percent, 5 basis points (bps) below Friday's close.

Total volume on the central bank's electronic trading platform was high at 63 billion rupees ($1.4 billion), above the normal 35 billion to 45 billion rupees dealt in the first two hours of trade.

"Lower global crude prices and weaker equities are favouring government bonds. Euro also is near recent lows," said Anoop Verma, an associate vice president at Development Credit Bank.

"The 10-year yield should be in a 8.28 to 8.32 percent range," he added.

Brent crude fell below $112 a barrel on Monday, as fears of another US recession slowing fuel demand overshadowed supply concerns over a major shutdown of offshore oil production forced by Tropical Storm Lee.

The MSCI index of Asian stocks ex-Japan was down 2.7 percent, while India's main share index shed 1.2 percent.

US Treasuries prices gained on Friday and benchmark note yields again fell below 2 percent after a weak jobs report increased the likelihood that the Federal Reserve would make new bond purchases.

In Asian trade, the 10-year benchmark US note was at 1.99 percent, little changed from late New York trade on Friday.

The benchmark five-year Indian overnight indexed swap rate was down 13 bps at 6.85 percent while the one-year rate was 17 bps lower at 7.68 percent.

Traders will now await details of this week's 110 billion rupees ($2.4 billion) debt sale for further cues.

Copyright Reuters, 2010