MUMBAI: Indian federal bond yields nudged up on Wednesday, snapping a six-day slide, tracking higher global crude oil prices, but a $2.7 billion bond sale later this week weighed on sentiment.
The 10-year benchmark bond yield inched up 1 basis point to 8.24 percent from its previous close. On Tuesday, it had fallen as much as 8.15 percent, its lowest since May 3.
Total volume on the central bank's electronic trading platform was heavy at 50.85 billion rupees ($1.13 billion), compared with the usual 35 billion-45 billion rupees dealt in the first two hours of trade.
"Overnight gains in crude is putting an upward pressure on rates while the bond auction later this week will keep traders away from adding positions," said Debendra Dash, a fixed-income trader with Development Credit Bank.
Dash expects the 10-year bond yield to trade in a range of 8.22-8.27 percent intra-day.
Brent crude rose $3 on Wednesday after the US Federal Reserve's promise to extend near-zero interest rates for two more years weighed on the dollar and helped reverse a steep slump in oil.
Brent crude for September rose as much as $105.67 a barrel and traded at $104.83 by 0600 GMT.
The US Federal Reserve on Tuesday took the unprecedented step of promising to keep interest rates near zero for at least two more years, adding it was considering further action, sparking a rebound in stocks.
The benchmark five-year swap was 2 basis points lower at 7.04 percent from previous close, while the one-year rate was at 7.64 percent from 7.62 percent.
"One-year swap is marginally higher because of the view that the overnight rise in commodity prices may hold the RBI (Reserve Bank of India) at higher rates for a longer period of time," said Arun Kumar R., vice-president of India credit at Nomura.
India's central bank has raised key rates 11 times since March 2010, in its battle against sticky inflation, which quickened to 9.44 percent in June.
"The five-year swaps are lower because the markets believe that the economic cycle in India will slow further with higher interest rates and weakening global demand," Kumar added.
Car sales in India fell 15.8 percent in July, an industry body said, the first fall in two-and-half years, with higher interest rates, rising fuel prices and vehicle costs expected to keep demand subdued for the next few months.
Traders said they would continue to watch the movement in US yields and global oil prices for direction.
India's central bank had said on Monday it would ensure adequate rupee and forex liquidity, in a move to calm markets after a US rating downgrade rattled investors already reeling under a gloomy world economy.
Traders said the yields could also come under pressure before a $2.7 billion debt auction on Friday. The government will sell 30 billion rupees each of 7.83 percent 2018 and 8.30 percent 2040 bonds. It will also sell 60 billion rupees of 7.80 percent 2021 bonds.
Copyright Reuters, 2011
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