MUMBAI: Indian government bonds fell for a fifth consecutive session on Wednesday as investors sold some of their debt holdings to make space for the upcoming $2.41 billion bond auction on Friday, with caution also prevailing ahead of the US monthly jobs data.
The jobs data, due on Friday, could help set expectations about the timing of any tapering in US monetary stimulus ahead of the Federal Reserve's policy meeting in December.
Investors also expect a period of prolonged caution until inflation data, due on Dec. 16, which will set expectations ahead of the central bank's policy review on Dec. 18.
The Reserve Bank of India raised interest rates twice by 25 basis points each in September and October, and traders worry the central bank could again tighten policy this month.
"A high reading for November inflation would increase the possibility of further rate hikes," said Sandeep Bagla, executive vice president at ICICI Securities Primary Dealership.
"The language alongside a rate hike would not be comforting as well. In our market, unless a lower inflationary trajectory gives the go ahead, the market cannot run very far or for too long," Bagla added.
The benchmark 10-year bond yield closed up 2 basis points at 9.09 percent while the new 10-year, soon-to-be-benchmark bond yield, also edged up 2 bps to 8.78 percent.
Traders expect bond yields to be wedged in a 3-5 basis points range until the auction on Friday. The government is selling 70 billion rupees of the new 10-year paper along with three other bonds.
In the overnight indexed swaps market, the benchmark five-year swap rate closed 1 basis point higher at 8.34 percent, while the one-year rate closed steady at 8.40 percent.
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