MUMBAI: Indian bond yields rose on Monday, ahead of the government's borrowing details for the first half of the fiscal year and on caution before the central bank's monetary policy review.
The Reserve Bank of India (RBI) is expected to cut interest rates by 25 basis points on Tuesday.
There is growing expectation the RBI will also cut the cash reserve ratio after Finance Minister P. Chidambaram said on Monday he was sure the central bank would address the current liquidity tightness.
Although a cut in CRR is seen as improving liquidity, the impact can be negative for bonds, given it reduces expectations the central bank will purchase bonds via open market operations.
Investors were also keen for details about the government's plans to borrow 5.79 trillion rupees ($107.13 billion) for the fiscal year starting in April.
Post trading hours, the government said it will sell 3.49 trillion rupees worth of bonds in the fiscal first half.
"I think the market is neutral going into the policy; traders are not heavy.
Everyone expects a 25 bps cut, which is a positive, but the weekly auctions starting from April has dented demand at current levels," said Arvind Chari, a fixed income fund manager with Quantum Asset Management.
The benchmark 10-year bond yield closed 2 basis points (bps) higher at 7.88 percent, after rising to as high as 7.89 percent earlier in the session.
Total volumes on the central bank's electronic trading platform were lower at 196.10 billion rupees compared with the average 300-350 billion rupees in recent weeks.
The RBI cut the repo rate by 25 bps at its last policy review in January, when it also delivered a 25 bps CRR cut.
India's cash deficit has continued to remain bloated, with repo bids coming in at 1.43 trillion rupees on Monday.
The RBI's statement on Tuesday will also be critical, given the central bank's cautious tone on the outlook for monetary policy in January had disappointed investors.
Interest rate swaps fell in line with global risk aversion after the surprise decision by euro zone leaders to partially fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets.
The benchmark 5-year swap rate fell to a near two month low, before closing 2 bps lower at 7.14 percent. The 1-year rate ended unchanged at 7.50 percent.
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