MUMBAI: Indian government bonds ended lower for a second straight session on Tuesday due to profit-taking as the market looked to consolidate after gains in the previous week pushed the 10-year yield to an over four-month low.
Investors also stayed cautious as foreign investors nearly exhausted their available investment limit in government debt.
Overseas investors used up 92.82 percent of the available debt limit, following which the National Stock Exchange announced it will conduct an auction for 71.52 billion rupees ($1.21 billion) on Wednesday to allot the remaining unutilised limit.
Separately, NSE advised foreign investors to not increase their long positions in bond futures as their overall holding in government debt was nearly used up.
"Overall the market is well positioned to see a further rally given positive expectations both from the fiscal and monetary front ... probability of raising the FII investment cap would lead to some buying appetite," said Shakti Satapathy, a senior strategist with AK Capital.
Satapathy expects the 10-year bond yield in an 8.45-8.60 percent band until the budget, which is likely in early or mid-July.
Investors are expected to focus next on consumer price inflation data for May due out on Thursday.
The benchmark 10-year bond yield ended up 1 basis point at 8.56 percent, after earlier hitting a high of 8.58 percent. It had touched 8.49 percent on Friday, the lowest level since Jan. 21.
Earlier in the day, bonds shed losses after Finance Ministry's Principal Economic Adviser Ila Patnaik said the government can pare its fiscal deficit without hurting people, although her comments came from a panel discussion where she spoke in her capacity as an economist.
The benchmark five-year swap rate ended up 2 bps at 7.80 percent and the one-year rate rose 3 bps to 8.23 percent.
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