MUMBAI: Indian government bonds fell for a third consecutive session on Monday, posting their biggest single-day decline in nearly three weeks, on continued profit-taking after recent strong gains and on concerns about the outlook for US interest rates.
Federal Reserve chief Janet Yellen was seen as more hawkish than her European counterpart at a central bankers' meeting in Jackson Hole, Wyoming, sparking continued debate about how soon the US central bank would raise interest rates.
Traders also cited caution about whether the debt limit for foreign institutional investors (FIIs) would be lifted, with data showing the segment has used up almost its entire allocation of $25 billion.
India saw muted demand from FIIs at its debt limit auction on Friday as dealers cited expectations that the debt limits would soon be increased, thus reducing the urgency to bid aggressively on Friday.
"There was some profit-taking seen amid the dull trading today," said Harish Agarwal, a fixed income trader with First Rand Bank.
"Broadly the 10-year will hold in an 8.45 to 8.65 percent range," Agarwal said.
The benchmark 10-year bond yield closed up 4 basis points at 8.56 percent after moving in an 8.52 percent to 8.57 percent range.
The 4 bps rise on the day is the biggest single-day rise since Aug. 5.
Traders say failure to lift FII limits could act as a dampener in markets given overseas funds have been a big factor behind recent gains, with net purchases so far this year totalling $16.7 billion.
Caution is also expected to prevail ahead of gross domestic product data for the April-June quarter due to be released on Friday.
In the overnight indexed swap market, the benchmark five-year swap rate closed up 3 bps at 8.04 percent, while the one-year rate ended 1 bp higher at 8.45 percent.
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