MUMBAI: Indian bonds fell for a second consecutive session on Wednesday amid caution ahead of this week's 160-billion-rupee ($2.7 billion) bond auction, though sentiment was subdued before the outcome of general elections next week.
Some continued profit-taking pressured bonds, although broader falls were capped since banks were seen actively buying bonds to replenish their bond holdings ahead of redemptions worth 592.23 billion rupees ($9.86 billion) in bond and treasury bills until next week.
The outcome of the 150-billion-rupee treasury bills auction earlier in the day had little impact on the market as the cut-offs were mostly in line with expectations, traders said.
Markets are focused next on the 160-billion-rupees auction on Friday, which will include 70 billion rupees of the benchmark 10-year bond.
Trading is also expected to be subdued ahead of the outcome of elections on May 16, amid widespread expectations the opposition Bharatiya Janata Party, which is perceived as being more business friendly, and its allies will win a majority.
"The bias for yields is to go down and if we get a stable government the 10-year yield should go down to around 8.60 percent," N.S. Venkatesh, treasurer at IDBI Bank.
The benchmark 10-year bond yield ended up 2 basis points at 8.80 percent after moving in a 4-basis-point band during the session.
Bond yields had hit a seven-week low on Monday, in part on easing worries about liquidity before profit-taking over Tuesday and Wednesday.
Ahead of Friday's debt sale, the RBI set the underwriting commitment in line with market expectations, traders said.
In the overnight indexed swap market, the benchmark five-year swap rate closed unchanged at 8.32 percent, while the one-year rate ended steady at 8.56 percent.
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