MUMBAI: Indian government bonds rose on Friday for a fourth straight session on continuing optimism over the central bank's dovish tone in its monetary policy review, although broader gains were capped ahead of the expected issuance of a new 10-year debt.
Debt markets have rallied after the Reserve Bank of India hinted on Tuesday that it would not raise interest rates further as long as inflationary pressures continued to ease.
But broader gains on Friday were capped after Reuters reported the central bank is likely to issue a new 10-year paper later this month.
The benchmark 10-year bond yield fell 13 basis points for the week after having ended flat in the previous week.
"I don't think we have seen the bottom for yields yet. There is likely some more steam left provided fiscal and inflation numbers support," said Bekxy Kuriakose, head of fixed income at Principal PNB Asset Management.
"Due to the news on the new 10-year paper today and the sharp run-up in bonds over the last few sessions, some correction was inevitable," she added.
The benchmark 10-year bond yield ended down 2 basis points at 8.51 percent, after hitting 8.49 percent, its lowest level since Jan. 21.
Traders will continue to monitor movements in US bonds and other global factors for near-term cues. Foreign fund flows into the debt market have also been strong. So far in June, foreigners have bought $586.15 million worth of debt, taking
total debt inflows in 2014 to $8.2 billion.
Overnight indexed swap rates also continued to fall on hopes of rates remaining unchanged for a long time with some traders also betting on a rate cut towards the end of this fiscal year.
The benchmark five-year swap rate fell to 7.72 percent, its lowest level since July 15, 2013, before closing at 7.73 percent versus its close of 7.75 percent on Thursday.
The one-year rate dropped as low as 8.13 percent, also its lowest since July 15, 2013 before closing at 8.14 percent, versus its previous close of 8.16 percent.
On the week, the five-year rate ended down 36 basis points, its biggest weekly fall since the week to Aug. 23, 2013.
The one-year rate fell 24 basis points on the week, its biggest weekly fall since the week to Oct. 11, 2013.
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