Indian bond yields, swaps fall

Indian federal bond yields fell for a second straight session on Friday supported by global demand for safe-haven government bonds triggered by Greece's debt woes, but hopes of a bailout that pushed the euro up in late trade, pulled yields off lows.
The 10-year benchmark bond yield closed down 3 basis points (bps) at 8.27 percent, after trading in a 8.22-8.30 percent range in the day. On the week, the benchmark bond yield rose 4 bps. "The 10-year bond should hold in a 8.20 to 8.40 percent range," Murthy Nagarajan, head of fixed income at Tata Asset Management said.
"Traders had build heavy short positions after the inflation data, so one will see traders building short positions from 8.25 percent and covering up at 8.35-8.40 percent levels." Total volume on the central bank's electronic trading platform was a hefty 196.80 billion rupees ($4.4 billion), or roughly twice the normal traded volume. "Bond yields and swap rates came off lows tracking the euro in late trade," said Chetan Shenoy, an associate vice president at IndusInd Bank.
The euro turned higher on Friday, while stocks pared losses as expectations that a solution for debt-laden Greece maybe hammered out by euro zone policymakers soon soothed near-term concerns of a contagion. "Bond yields and swap rates fell on Greece woes and due to a fall in oil prices. Markets are likely factoring one more (interest rate) hike at the most," said Tata Asset's Nagarajan.
India's central bank raised interest rates on Thursday for the tenth time since March 2010 and said it will persist in its battle against stubbornly high inflation, downplaying worries about slowing growth in Asia's third-largest economy. . See for other policy stories. The benchmark five-year Indian swap rate closed down 1 bp at 7.65 percent, while the 1-year rate shed 3 bps to 7.93 percent. The five-year rate had dropped to as much as 7.52 percent, while the 1-year had fallen to a low of 7.85 percent during the session.
The spread between the 1-year and 5-year rate is at -28 bps. It had widened to as much as - 30 bps at close on Thursday, its highest since October 8, 2008. The swap curve had first inverted on May 27 and has been in the negative zone since.