MUMBAI: Indian federal bond yields treaded water on Friday after a sharp drop in the previous session as traders turned their focus to a $2.7 billion debt sale.
The government is selling 30 billion rupees each of 7.83 percent 2018 bonds and 8.30 percent 2040 bonds, and 60 billion rupees of 7.80 percent 2021 bonds. The results are due after 0900 GMT.
At 11:15 a.m. (0545 GMT), the 10-year benchmark bond yield was unchanged at 8.24 percent, after falling six basis points (bps) on Thursday.
Total volume on the central bank's electronic trading platform was moderate at 33 billion rupees ($742 million), compared with the usual 35-45 billion rupees dealt in the first two hours of trade.
"Traders mostly prefer to stay light ahead of the auction. There is likely to be good demand at the auction due to the positive sentiment being there from yesterday, but results will be eyed," a trader with a foreign bank said.
Yields had fallen on Thursday on expectations the central bank may soon pause its rate tightening cycle amid slowing economic growth.
Earlier this week, government data showed industrial output rose at its weakest pace in nine months in May. However, inflation quickened in June, driven by higher prices of manufactured goods and fuel.
The benchmark five-year swap rate and the one-year rate were both down 1 bp each at 7.46 percent and 7.86 percent, respectively, extending the previous day's 12 bps drop.
Traders expect the 10-year yield in an 8.20-8.25 percent, with the downside limited by higher US yields and a rise in oil prices.
Treasuries prices edged down slightly in Asian trade as a warning from Standard and Poor's on US borrowing underscored concerns on whether the government will be able to hammer out a deal to raise its debt ceiling.
The 10-year benchmark US note was trading at 2.96 percent, up 1 bp from late New York trade on Thursday.
Oil rebounded on Friday on a weaker dollar after Standard & Poor's warned it may lower the credit rating of top consumer the United States, capping a volatile week marked by concern about the US deficit and the euro zone's debt.
Copyright Reuters, 2011
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