MUMBAI: Indian federal bond yields edged higher on Wednesday, snapping two sessions of decline, as traders booked profits after the central bank did not announce a bond buyback in the previous session, belying market expectations.
The market was also awaiting inflation data due around noon (0630 GMT) for cues on the central bank's stance when it meets to review policy on Friday.
Economists in a new Reuters poll expect the Reserve Bank of India to accelerate monetary easing in 2012 as economic conditions worsen in Asia's third-largest economy.
At 11:00 a.m. (0530 GMT), the benchmark 10-year bond yield was up 2 basis points at 8.42 percent. Traders expect the yield to be in a 8.40-8.45 percent range during the session.
Total volumes on the central bank's electronic trading platform were higher at 58.85 billion rupees ($1.1 billion), compared with the average 35 billion to 45 billion rupees dealt in the first two hours of trade.
The yield had ended at 8.40 percent on Tuesday, its lowest close since Sept. 29, as traders had expected the central bank to buy back more debt amid tight liquidity conditions.
The RBI has bought back government debt worth 243.11 billion rupees over the past three weeks to help ease tight cash conditions. Borrowings by banks at the central bank's daily repo auctions stand at around 800 billion rupees, above the RBI's comfort level around 600 billion rupees.
"The yields will depend on the monthly price data. If it comes below 9 percent, there could be a further rally in prices," said Debendra Dash, a fixed-income dealer with Development Credit Bank.
"But prices have rallied quite a bit already and we don't see the yields falling below 8.40 percent today," he added.
The country's headline inflation likely eased in November to 9.04 percent from 9.73 percent the month before as food prices fell to their lowest in nearly three-and-a-half years, a Reuters poll showed.
India's chief economic adviser, Kaushik Basu, said earlier in the day he expects food inflation to drop to 3 percent within a month.
The benchmark five-year swap rate was down 5 basis points on the day at 6.95 percent and the one-year rate was at 7.67 percent from 7.72 percent at previous close.
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