MUMBAI: Indian government bond yields ended steady for a third straight session on Wednesday, ahead of the outcome of the US Federal Reserve's policy meeting, which is expected to offer fresh clues on when it plans to begin lifting interest rates.
India, among other emerging markets, has benefited from the US Fed's loose monetary policies. Foreign institutional investors (FIIs) have bought a net $18.75 billion worth of debt so far this year.
However, FIIs have used up almost all of their existing $25 billion limit, raising caution. Reserve Bank of India Deputy Governor H.R. Khan said on Tuesday there was no proposal yet on raising the limits.
That could cap any significant gains in government bonds, analysts said, although debt markets could be hit should the Fed signal early rate hikes.
"Barring a sharp move in US treasury yields above 2.75 percent, we think Indian government bond yields should remain in current band or head a bit lower in the near term given improving macro and fiscal factors ," said Bekxy Kuriakose, head of fixed income trading at Principal PNB Asset Management.
The benchmark 10-year bond yield ended steady at its previous close of 8.50 percent.
Shorter-end bond yields, particularly 7.28 percent 2019 , ended down 3 basis points at 8.52 percent from Tuesday's close of 8.55 percent.
The market is also awaiting the next tranche of debt buyback, as indicated by the central bank deputy on Tuesday, after the RBI bought 127.6 billion rupees ($2.10 billion) in the last session.
Overnight cash rates remained comfortably near the repo rate as the central bank continued to inject liquidity through variable overnight repo auctions as well as through the daily liquidity adjustment facility.
Total volumes in the bond market fell to 184.25 billion rupees, lower than Tuesday's 198.9 billion rupees, as well as below the daily average in the last three months.
In the overnight indexed swap market, the benchmark 5-year swap rate and the one-year rate ended down 1 bp each at 7.94 percent and 8.43 percent.
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