Indian bonds yields steady

Indian federal bond yields ended steady on Friday as traders eyed January inflation data due on Monday for fresh cues on the central bank's attitude towards monetary tightening. "Monday's inflation is going to have an important influence in the debate on whether Reserve Bank of India (RBI) is likely to continue with a gradual, calibrated stance or turn aggressive" said Vivek Rajpal, interest rate strategist at Nomura Financial Advisory & Securities (India).
A Reuters poll predicted India's wholesale price inflation to ease only slightly to 8.05 percent in January from 8.43 percent in December as commodity and fuel prices remain high. Focus on inflation has increased as most players do not expect the RBI to be deterred from rate hikes despite the sharp slump in the industrial output. "Fall in December output is largely on high base effect, and month-on-month growth is still robust. So, RBI may not be pushed on the back foot as far as tightening is concerned. Hence inflation assumes greater significance," said a senior fixed income dealer at a primary dealership.
India's annual industrial output in December rose 1.6 percent on year, registering the slowest pace of rise in 20 months, government data showed. A Reuters poll had predicted the output at 2 percent. The central bank will holds its next monetary policy review on March 17.
Yield on the most-traded 8.13 percent, 2022 bond ended steady at 8.20 percent, while the second-most traded 8.08 percent, 2022 yield climbed 1 basis point to 8.24 percent. The illiquid benchmark 10-year yield fell 1 basis point to 8.12 percent. Volumes in the bond market were low at 55.25 billion rupees ($1.21 billion), the central bank's reporting platform showed. On a normal trading day, the turnover in the bond market is typically around 90 billion-100 billion rupees.
In the overnight indexed swaps, the one-year swap ended down 1 basis point at 7.44 percent and the benchmark five-year swap closed down 4 basis points at 8.05 percent. Intraday, bond traders side-stepped the auction results as cut-offs set by RBI were in-line with estimates, dealers said.