MUMBAI: Indian government bond yields ended steady on Monday as caution prevailed ahead of the upcoming US Federal Reserve meeting, but yields were down for much of the session after a sharp decline in wholesale price inflation rate and core retail inflation data.
India's wholesale price inflation eased to its lowest level in nearly five years in August, but the central bank is likely to keep interest rates on hold later this month to prevent a revival in price pressures once the economy gains momentum.
The uptick in US yields following the strong US retail sales numbers prevented traders from adding large positions in the domestic debt market, traders said.
Investors across the globe are gearing up for a hawkish statement from the US central bank at the end of its two-day policy meeting on Thursday.
"Pressure from global markets is not allowing yields to move much lower despite the lower WPI and core CPI. I expect the 10-year to hold in a 8.45 to 8.55 percent range until the Fed meeting outcome" said Harish Agarwal, a fixed income dealer with First Rand Bank.
The benchmark 10-year bond yield ended steady at its previous close of 8.50 percent.
Traders will continue to monitor the movement in global crude oil prices for its impact on inflation.
Reserve Bank of India Governor Raghuram Rajan said earlier on Monday inflation in Asia's third-largest economy was still high and there was no point in cutting interest rates to see inflation pick up again. The central bank wants to bring down interest rates when it is "feasible", he said.
Brent crude slumped to its lowest in more than two years, below $97 per barrel as lacklustre economic data from China, the world's top energy consumer, cast a shadow over the outlook for oil demand at a time of abundant supply.
In the overnight indexed swap market, the benchmark 5-year swap rate ended down 3 basis points at 7.97 percent while the one-year rate ended 1 bp lower at 8.44 percent.
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