MUMBAI: Indian government bonds edged higher on Wednesday on the back of easing cash conditions and bargain buying after recent sharp falls, although sentiment remained cautious ahead of key economic data later this week.
Overnight cash rates fell to as low as 7.00/7.10 percent as traders cited some government spending and lower credit needs by lenders. Banks borrowed only 81.14 billion rupees ($1.34 billion) from the central bank's repo window, earlier in the day, the lowest since Aug. 5.
Investors were also attracted by recent sharp falls in government bonds sparked by worries about whether India
would increase debt limits for foreign institutional investors.
"The central bank's assurance that it will tackle unexpected liquidity stress and government's indication that borrowing may be reduced due to its cash rich position is helping the debt market," said Pramod Patil, head of fixed income and foreign exchange trading at United Overseas Bank.
The 8.60 percent 2028 bond, which overtook other bonds to become the most-traded paper on Wednesday, closed down 2 basis points at 8.70 percent. The yield had risen 8 bps over the previous four sessions.
However, the benchmark 10-year bond yield closed steady at 8.56 percent after rising 8 bps over the previous four sessions.
Broader gains in bonds were capped on caution ahead of the economic growth data on Friday and possibly the current account deficit data as early as this week.
In the overnight indexed swap market, the benchmark five-year swap rate and the one-year rate both ended steady at 8.04 percent and 8.45 percent respectively.
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