MUMBAI: Indian government bond yields ended steady on Tuesday on continued caution about whether the country would raise investment limits for foreign investors, with sentiment also constrained ahead of key economic indicators this week.
Foreign institutional investors have been strong buyers of Indian debt this year but have almost exhausted their debt limit, raising concerns about whether gains can continue without these key buyers.
Buying in government debt by foreign funds stands at $2.54 billion so far in August, taking total inflows in 2014 to $16.78 billion.
Caution also prevailed as India is due to post economic growth data on Friday, and may also post current account deficit data as early as this week.
"We will see the 10-year consolidate between 8.50 and 8.65 percent levels over the next two-three months after which easing supplies and buying by long-term investors will bring yields lower," said Murthy Nagarajan, head of fixed income at Quantum AMC.
The benchmark 10-year bond yield closed steady at its previous close of 8.56 percent, after moving in a 8.54 percent to 8.57 percent range.
The second-most traded 8.60 percent 2028 bond yield also ended steady at 8.72 percent.
Traders say failure to lift FII limits could act as a dampener in markets but the central bank's pro-active liquidity management and smaller auction sizes are likely to limit falls.
In the overnight indexed swap market, the benchmark five-year swap rate and the one-year rate both ended steady at 8.04 percent and 8.45 percent respectively.
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