MUMBAI: Indian federal bond yields ended up after seven straight sessions of drop ahead of a $2.6 billion bond sale on Friday and after food inflation accelerated, building a case for a rate increase in the near term by the central bank.
The 10-year benchmark bond yield ended at 8.21 percent, up 2 basis points on the day after trading in the range of 8.15-8.26 percent.
Volumes were a heavy 187.70 billion rupees ($4.1 billion) on the central bank's trading platform.
"Weekly inflation data and supplies pushed yields higher," said A.Y. Shedshale, deputy general manger of treasury at Bank of Maharashtra.
"There will be a good demand for the 10-year bond at 8.20 percent levels."
India's food inflation accelerated to 9.9 percent in end-July, the highest since mid-March, suggesting the central bank would continue monetary tightening despite renewed concerns about possible global slowdown.
Dealers said June's industrial output data due at 0530 GMT and the $2.6 billion bond auction on Friday would be watched for directional cues.
The government will sell 30 billion rupees each of 7.83 percent 2018 and 8.30 percent 2040 bonds in addition to 60 billion rupees of 7.80 percent 2021 bonds.
Annual industrial output growth probably slipped further in June to 5.5 percent from a nine-month low of 5.6 percent in May, indicating taut monetary policy and soaring inflation were hindering growth momentum, the median forecast in a Reuters poll showed.
Traders will also focus on July monthly inflation data on Tuesday to form expectations from the Sept. 16 policy review.
India's central bank is expected to continue tightening policy in coming months until inflation peaks, despite increasing uncertainty over a global economic slowdown and an extended period of easy policy in the developed world.
Market however expects the central bank to soften its stance given the current bleak global economic outlook.
The one-year rate was at 7.48 percent, down 2 basis points on the day after falling to 7.29 percent, it is lowest since March 17.
Dealers said 1-year OIS below the central bank's main lending rate of 8 percent indicates that the central bank may pare rates.
The benchmark five-year rate closed 15 basis points lower on the day at 6.76 percent, after touching a low of 6.66 percent in early trade, a level last seen on July 2, 2010
Copyright Reuters, 2011
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