Indian bond yields steady after early rise

MUMBAI: Indian federal bond yields were steady after edging up early on Friday, tracking higher US yields overnight and crude oil prices, as sentiment stayed cautious ahead of the domestic central bank's policy review decision at noon (0630 GMT).

The Reserve Bank of India is widely seen delivering the last rate increase in its 18-month-long tightening cycle as inflation pressures continue to remain strong, a Reuters poll of 18 economists showed.

At 10:05 a.m. (0435 GMT), the 10-year benchmark bond was at 8.33 percent, steady from its previous close after trading in a range of 8.33 percent to 8.35 percent so far.

Total volumes on the central bank's electronic trading platform were at a low 8.65 billion rupees ($182 million) compared to the normal 25 to 35 billion rupees dealt in the first 75 minutes of trade.

"Until the policy decision I expect the 10-year bond yield to be ranged between 8.30-8.35 percent while post that, depending on the decision it would be volatile and could swing between 8.25 to 8.40 percent," said Anoop Verma, an associate vice president at Development Credit Bank.

A 25-basis point increase in key rates was already factored in, but yields could still rise 3 to 4 basis points in a knee-jerk reaction, traders said.

A status quo could gradually push the 10-year yield towards 8.25 percent, while a 50-bps rate increase would push it to 8.45 percent, traders said.

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US government debt prices fell on Thursday as a global central bank plan to provide three-month dollar loans to European financial firms encouraged investors to move into riskier assets like stocks.

Benchmark US 10-year notes were yielding 2.08 percent in Asian trade, down 1 bp from late New York trade on Thursday when they had risen 10 bps.

Oil was headed for a weekly gain on Friday after central banks launched coordinated action to boost European bank funding, easing concern about falling oil demand from industrialised consumers.

State-run Indian oil firms raised petrol prices by nearly 5 percent from Friday, but traders said due to the low weightage of petrol in the fuel index it was unlikely to have a large impact on inflation expectations.

The benchmark five-year overnight indexed swap rate was up 4 bps at 6.83 percent, while the one-year rate at 7.79 percent up 6 bps.

Copyright Reuters, 2011