MUMBAI: Indian government bonds snapped two days of gains on Thursday to end lower as investors trimmed bond holdings to make way for the 150-billion-rupee debt sale on Friday, which includes 70 billion rupees of the 10-year benchmark bonds.
Market also fretted over the impact of poor monsoon rains on inflation, as food prices trend higher.
In the recent past, RBI governor Raghuram Rajan has raised concerns over high food prices weighing on the consumer price inflation, which is now the primary inflation gauge for the economy.
Sentiment also remained cautious ahead of the upcoming federal budget on July 10.
"Market wants to see the government's re-affirmation on commitment towards reform. The 10-year yield should be in a band of 8.60-8.75 percent until the budget because as of now there is no reason to break the range," said Mahendra Jajoo, director and chief investment officer of fixed income at Pramerica Mutual Fund.
The recent rollback of some of the railway fare hikes, deferring decision to increase gas prices and extending the excise duty concessions on auto, consumer durables and capital goods raised some doubts on the government's resolve on biting the "bitter pill" of reforms.
The benchmark 10-year bond yield ended up 3 basis points on the day at 8.73 percent.
In the overnight indexed swap market, the benchmark five-year rate closed unchanged at 7.94 percent, while the one-year rate ended up 1 basis point at 8.38 percent.
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