Indian federal bond yields ended largely steady on Friday ahead of key US jobs data, with domestic factory output and inflation data next week crucial to expectations about the central bank's July 26 policy review. The 10-year benchmark bond yield ended down 1 basis point (bps) at 8.35 percent after trading in the range of 8.33-8.37 percent.
Volumes were an average 84.20 billion rupees ($1.9 billion) on the central bank's trading platform. The benchmark five-year swap rate ended down 1 bps at 7.72 percent, while the one-year rate closed 2 bps higher at 8.09 percent. The Indian government will have to consider cancelling or postponing its borrowing programme if bond yields stay "unacceptably" high, a senior finance ministry official with direct knowledge of the matter told Reuters on Friday.
Yields should not be higher than 8.25 percent, the official said. "Yields did not rise after the finance ministry source statements and the auction sold-off pretty well, otherwise yields could have risen 2-3 basis points," said Manish Wadhawan, director and head of rates at HSBC India.
The government sold 120 billion rupees of bonds on Friday. Traders were also eyeing the US June non-farm payrolls data due at 1230 GMT, ahead of India's industrial output data on Tuesday and inflation data on Thursday. A Reuters survey conducted last week found that economists were looking for an increase of 90,000 US non-farm jobs after May's meagre 54,000 gain, but many economists lifted their forecasts in the wake of the latest data to between 125,000 and 175,000 jobs.
India's industrial output probably rose 8.2 percent in May from a year earlier, on a favourable statistical base effect and strong exports and infrastructure growth, the median forecast in a Reuters poll showed. Dealers said they would closely watch the details of next week's auction to see if the government announces a cut.
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