MUMBAI: Indian federal bond yields were rangebound on Tuesday as absence of fresh triggers held traders back from taking large positions, but there was demand from banks to boost valuations before the financial year ends on Thursday.
At 10:25 a.m. (0455 GMT), the yield on the most-traded 8.08 percent 2022 bond and the second most-traded 8.13 percent 2022 bond were both up 1 basis point at 8.04 percent and 8.02 percent respectively. Both bonds had earlier eased 1 basis point.
The less liquid 10-year benchmark bond yield was flat at 7.98 percent after having dropped to 7.97 percent earlier. Total volume was a moderate 21.25 billion rupees ($474 million) on the central bank's electronic trading platform.
"Quite a bit of rally has already happened, hence some consolidation is seen at current levels but there could be some more steam left," said Bekxy Kuriakose, head of fixed income at L&T Investment Management.
"We could expect another 5 basis points downside and I expect the trend to change only around end-April. Inflation data is unlikely to be a major factor for the market, because ideally if it mattered much, going by the spike in oil prices, yields should have already been much higher," she added.
The industrial output and inflation data are due in mid-April. The central bank will announce its annual monetary policy for the next fiscal year on May 3 and the data would be crucial for cementing expectations of a 25 basis points hike in key rates.
"The rally in the swaps market however is continuing, even bonds could see some more downtrend for yields in the rest of the week," a senior dealer with a foreign bank said.
The benchmark 5-year swap rate edged down 4 basis points to 7.89 percent while the one-year swap rate eased 3 basis points to 7.40 percent.
"Despite all the other factors, the market is likely to bid for the new 10-year bond around 7.85 percent, helping other bonds to edge lower," the dealer said.
The government is expected to issue a new benchmark 10-year paper, probably at the first auction in the next fiscal year.
The government said on Friday it would borrow 2.5 trillion rupees ($56 billion), or 60 percent of its 2011/12 year borrowing target of 4.17 trillion rupees ($93 billion), by end-September, slightly below market expectations.
Traders said the reassurance that the central bank would conduct open market operations if required was also helping market sentiment.
A deputy governor at the central bank, Shyamala Gopinath, said on Friday the Reserve Bank of India could purchase bonds from the secondary market if needed to infuse liquidity into the banking system.
Brent crude fell for a third day running on Tuesday as Libyan rebels gained ground against embattled leader Muammar Qadhafi, boosting expectations supplies from the nation may be restored quicker than expected.
"It is year-end so better not to take any large positions or views. Once auctions start and the new benchmark 10-year bond is issued, only then will there be large interest," said Anoop Verma, an associate vice president with Development Credit Bank.
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