MUMBAI: Indian federal bond yields dropped for a second straight session on Monday on a shaky global economic outlook-triggered market volatility, with a fall in crude oil prices also aiding.
At 11:20 a.m. (0550 GMT), the 10-year Indian benchmark bond yield was at 8.23 percent, down 3 basis points (bps) from Thursday's close. The bond and forex markets were closed on Friday for a local holiday.
Total volumes on the central bank's electronic trading platform were at a high 60.65 billion rupees ($1.3 billion) compared with the normal 35 billion-45 billion rupees dealt in the first two-and-half hours on a normal day.
"Markets have been extremely volatile as no one knows which way the global situation will turn, but there will be buying in bonds as uncertainties over domestic growth remain," said Sandeep Bagla, senior vice president at ICICI Securities Primary Dealership.
India's central bank has raised rates 11 times since March 2010 to combat high inflation, which is seen as dragging down growth from the government's projection of 8.5 percent for the current fiscal that ends in March 2012.
The wholesale price index , India's main inflation gauge, rose 9.22 percent in July.
"There is a high possibility of commodity prices coming down and that too should help Indian bonds. I expect the 10-year bond to possibly drop to 8.14-8.15 percent levels if global uncertainties remain, while 8.26-8.27 should be the top."
Brent crude dropped more than $2 on Monday to around $106 a barrel on the potential for a resumption of exports from OPEC-member Libya as a six-month civil war there appeared close to an end.
Traders said a rise in US yields however, was limiting a further downside in local bond yields.
Some US Treasuries posted slight losses on Friday, nudging yields up from their lowest levels in at least 60 years, but investors remained jittery before this week's global central bank conference.
In Asian trade, the 10-year benchmark US bond yield was at 2.08 percent, up 1 basis point from late New York trade on Friday when it had risen sharply from 1.98 percent previously.
The benchmark five-year Indian overnight indexed swap rate was at 6.70 percent down 4 bps from Thursday's close while the one-year rate was 14 bps lower at 7.57 percent.
Traders will also await details of this week's 110 billion rupees bond auction, due to be announced after market hours, for further cues.
Copyright Reuters, 2011
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