MUMBAI: Indian federal bond yields were flat in low volume trade on Friday as traders stayed on the sidelines ahead of the sale of a fresh 10-year paper as part of the first auction for the current fiscal year that began in April.
The government is selling 120 billion rupees ($2.7 billion) of bonds on Friday, kicking off its borrowing programme for the 2011/12 fiscal year. Bidding for the sale closes at 12:30 p.m. (0700 GMT) and results are due after 2:30 p.m.
Traders expect the new 10-year paper to be sold at around 7.85-7.90 percent levels.
At 10:40 a.m. (0510 GMT), the yield on the most-actively traded 8.13 percent, 2022 bond was steady at 8.05 percent while the second-most traded 8.08 percent, 2022 bond was up 1 basis point at 8.06 percent.
The less liquid 7.80 percent 2020 bond, the previous benchmark paper, had dropped 2 basis points to 7.97 percent on Thursday, but was not traded so far.
Total volume on the central bank's electronic trading platform was a low 10.25 billion rupees ($233 million) compared to the usual 20-30 billion rupees traded in the first hour and half of trade.
"The market is at the same levels as yesterday ahead of the auction, nothing much expected till then," said Anoop Verma, an associate vice president at Development Credit Bank.
Traders expect bond yields to move in a 2 to 3 basis points range until the auction results are announced. However, they said improving cash conditions should provide some relief to the market.
Banks have turned net lenders to the central bank, in sharp contrast to being net borrowers of 1.06 trillion rupees at the end of March.
On Thursday, banks parked a net 728.2 billion rupees with the central bank, reflecting the surplus funds in the banking system.
The central bank decided to extend the current liquidity support measures until May 6.
Traders are also awaiting the industrial output data and the inflation data due next week.
India's industrial output probably rose 5.2 percent in February from a year earlier, picking up pace from the previous month on higher exports, the median forecast in a Reuters poll showed. Factory data is due at 11 a.m. on Monday, while inflation is due around noon on Friday.
High inflation in India, previously considered unacceptable, should not be accepted as "the new normal" and the central bank cannot afford to drop its guard, the Reserve Bank of India deputy governor Subir Gokarn had said on Tuesday.
The risks for a 50 basis point rate rise at the central bank's annual policy on May 3 are increasing with inflationary pressures on the rise, DBS said in a note on Friday.
The benchmark 5-year swap rate was steady at 8 percent, while the one-year swap rate edged 1 basis point higher to 7.46 percent.
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