MUMBAI: Indian federal bond yields inched higher on Tuesday as signs of improved cash in the banking system led to doubts that the central bank will buy bonds during the week.
Forex dealers have not cited any recent central bank intervention after the rupee recovered from its life low hit on Thursday and repo borrowings fell for a second successive session, leading to hopes of improved liquidity.
Banks borrowed 754.50 billion rupees from the central bank on Tuesday, a second consecutive session below the 1 trillion rupee mark.
Traders also preferred to stay on the sidelines as they are unsure of the fate of the running benchmark bond as its outstanding issuance has ballooned.
"There is uncertainty about the future of the current bonds and also about continuation of OMOs," said Anuj Tagra, a dealer with Union Bank of India.
"Till RBI continues with the OMOs, the market won't see a sell off," he added.
The RBI has bought 320.87 billion rupees via OMOs over the previous three weeks, and traders were waiting to see whether it would announce a fourth consecutive auction this week.
After market hours on Monday, RBI said the government will sell 150 billion rupees of bonds on June 1.
The benchmark 10-year bond yield ended up 1 basis point at 8.52 percent. It moved in a tight band of 8.51 to 8.53 percent during the day.
Total volumes on the central bank's platform stood at a moderate 99.40 billion rupees.
Traders said they broadly expect the 10-year bond yield to trade in a 8.45 to 8.55 percent range over the week, especially ahead of the Jan-March gross domestic product data due on Thursday.
India will allow foreign retail investors to buy local corporate bonds for the first time to boost capital inflows and support the battered rupee.
Separately, a senior official said the Reserve Bank of India has proposed to the finance ministry to reduce the minimum lock-in period on debt investment for foreign institutional investors, in another move to attract investors.
Global risk aversion due to worries over the euro zone crisis, as well and India's slowing growth and wide fiscal and current account deficits, have turned away investors from investing in local assets.
Foreign investors have bought a net of $177.7 million in debt and equity in May, far below the $7.2 billion in net inflows in February.
India's benchmark five-year OIS rate closed down 3 basis point at 7.44 percent, while the one-year OIS rate ended 4 bps lower at 7.93 percent.
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