MUMBAI: Indian federal bond yields snapped a three-session fall and nudged higher on Wednesday as profit-taking kicked in after price gains, while a rise in global oil prices also weighed.
Volume was relatively light as traders were cautious with monthly inflation data due on Thursday expected to show strong price pressure and force the central bank to tighten policy further. At 10:45 a.m. (0515 GMT), the 10-year benchmark bond yield was at 8.29 percent, up 1 basis point (bp) from the previous close.
"Oil and euro are up from yesterday evening levels. We have the monthly inflation data tomorrow, so market will continue to remain a little subdued ahead of that," said Debendra Dash, a fixed income dealer with Development Credit Bank.
"The benchmark bond will continue to hover around 8.30 percent. I expect it to be in a range of 8.27-8.32 percent today," he said.
Total volumes on the central bank's electronic trading platform were low at 20.70 billion rupees ($464 million), compared with 35-45 billion rupees usually dealt in the first two hours of trade.
Oil was trading at $97.20 a barrel from around $95 a barrel on Tuesday.
India's wholesale price index probably rose 9.70 percent in June from a year earlier, quickening from May, on rising food and fuel prices, a Reuters poll showed.
The Reserve Bank of India is widely expected to raise key rates by a quarter percentage point at a scheduled review on July 26 and traders hope the inflation data will offer cues on the likely moves.
The benchmark five-year swap rate and the one-year rate were both up 2 bps each at 7.58 percent and 7.98 percent, respectively.
"There is some recovery in global risk appetite but Ireland has been downgraded, so its not really a risk-on mode either, so market should be mixed until there is more clarity from Europe," a senior dealer with a foreign bank said.
"The next big mover should be the inflation number. A high enough number should give the market the certainty of a hike this month and put paying pressure on the 1-year rate, but 5-year will continue to be anchored by global risk sentiment."
The euro found some reprieve on Wednesday from a plunge since the start of the week and commodity currencies rose after upbeat Chinese data comforted market players gripped by fears that the euro zone debt crisis could spiral out of control.
The euro was trading at $1.4008 versus $1.3910 when the local debt market closed on Tuesday.
Copyright Reuters, 2011
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