MUMBAI: Indian government bond prices fell on Friday, hurt by a weak rupee and higher-than-excepted cutoff yields at a weekly auction, with economic growth data likely to give direction to yields next week.
Still, improved liquidity helped bonds notch up their first weekly gain in seven with yields ending 6 basis points lower.
With the central bank's two concessional forex swap facilities which have garnered upwards of $25 billion set to end in November, dealers are betting that the Reserve Bank of India will ease cash conditions to push the overnight operating rate to the repo rate.
Bond investors are gearing up for cues from the September-quarter GDP numbers, due at 1200GMT on Friday. A weaker-than- expected reading will make it difficult for the central bank to further raise the repo rate, which it has employed to tamp down on inflationary pressures.
"There is some improvement in liquidity which has helped the money market segment and the shorter-bonds. But the long-term prospects are not bright. The rate hardening cycle is likely to continue in future, in not now, surely in 2014," said Killol Pandya, senior fund manager at LIC Nomura Mutual Fund.
"It builds a case for steepening in the gilts curve," he said.
The new 10-year bond yield rose 2 basis points to 8.74 percent. The existing 10-year benchmark bond yield ended 3 basis points higher at 9.04 percent.
Yields were up 42 basis points for November.
The government sold 140 billion rupees of bonds with cut-off yields coming in slightly higher than market expectations.
Yields also rose in response to the fall in the rupee, dealers said.
In the overnight indexed swap market, the benchmark five-year swap rate closed 1 basis point higher at 8.34 percent, while the one-year rate was down 3 bps at 8.43 percent.
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