MUMBAI: Indian government bonds ended lower on Wednesday, giving up earlier gains spurred by worse-than-expected US jobs data as the rupee ended almost flat and caution prevailed ahead of the central bank's monetary policy review next week.
Bonds initially gained as US Treasuries yields fell to the lowest in three months on Tuesday after data showed September job growth slowed to its weakest pace in 15 months, reducing expectations that the Federal Reserve would pare its bond purchases this year.
However, the rupee failed to gain much traction despite gains in most emerging Asian currencies on the back of demand for dollars from state-run banks and a private oil company.
Traders are also looking ahead at the Reserve Bank of India's policy review amid expectations of a hike in the country's key lending rate, but a cut in a short-term interest rate, the marginal standing facility (MSF).
"The market will remain range-bound between 8.50 to 8.65 percent," said Debendra Dash, a senior fixed income trader with Development Credit Bank.
"The market is discounting a 25 bps cut in the marginal standing facility rate and a 25 bps hike in the repo. So we will see a rally only if the repo borrowing restrictions are removed," he added.
The benchmark 10-year bond yield closed at 8.63 percent, up 2 basis points (bps) on the day. In early trade, yields dropped as much as 7 basis points to 8.54 percent.
Traders will also continue to monitor any developments in the United States for near-term directions. The Federal Reserve is also due to hold its meeting next week from Tuesday to Wednesday.
In the overnight indexed swap market, the benchmark five-year swap rate closed steady at 8.23 percent while the one-year rate also ended flat at 8.42 percent.
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