Indian bond yields steady; supply, higher crude weigh

MUMBAI: Indian federal bond yields were largely steady on Wednesday, mirroring lower US yields and as investors found higher domestic yields attractive, although a rise in global crude prices and debt auctions this week limited aggressive buying.

The 10-year benchmark bond yield was at 8.30 percent, up just 1 basis point on the day, after easing to 8.27 percent in early trade.

Volumes were a moderate 34.80 billion rupees ($766.5 million) on the central bank's trading platform.

"US yields are lower and investors are finding the 10-year yield attractive to buy at 8.30 percent levels. The market will be rangebound as traders are divided whether the RBI (Reserve Bank of India) will just hike (rates) by 25 basis points or pause on Sept. 16," said a senior trader with a state-run bank.

US Treasuries edged higher in Asian trade, with a dip in US stock futures spurring some safe haven demand.

Brent crude rose on Wednesday, staying above $109 a barrel as a larger-than-expected drawdown in U.S gasoline stocks last week trumped concerns over the euro zone debt crisis.

Data from the clearing corporation of India showed that state-run banks were the biggest buyers of debt on Tuesday, while foreign banks and primary dealers were sellers.

The government is due to sell 100 billion rupees ($2.2 billion) of bonds on Thursday apart from holding a treasury bills auction for a similar amount later on Wednesday.

Traders expect both the debt auctions to sail through smoothly.

The benchmark five-year overnight indexed swap rate was down 2 basis points on the day at 6.90 percent. The one-year rate was up 6 basis points at 7.88 percent.

Indian inflation eased in July, data showed on Tuesday, although the still-high headline number and persistent price pressures in manufactured goods raised the odds that policy will have to stay tight in the economy despite the rising risks to growth.

India's industrial output expanded above forecasts in June helped by strong capital goods production, confirming resilience in Asia's third-largest economy.

Traders were divided on the possibility of a rate increase at the central bank's Sept. 16 policy review, given lingering concerns over the likelihood of a global economic slowdown and its possible impact on the Indian economy, and sought more cues to firm a view.

Copyright Reuters, 2011