MUMBAI: Indian federal bond yields inched up after shuffling in narrow range on Wednesday as a rise in global crude oil prices, higher US yields and position cutting ahead of Friday's $2.4 billion sale weighed.
The 10-year benchmark bond yield closed at 8.31 percent, up 1 basis point (bps) from its close on Tuesday, after trading in a 8.30-8.33 percent range during the day.
Total volumes on the central bank's electronic trading platform were at a moderate 93.50 billion rupees ($2 billion).
"Yields rose tracking higher crude prices and US yields. The governor's comments on SLR (statutory liquidity ratio) cut also had some continued impact," said Srinivas Reddy, a senior manager at state-run Andhra Bank in Mumbai.
US benchmark T-note yields bounced above 2 percent in Europe on Wednesday following news that President Barrack Obama will unveil a $300 billion jobs package, but the move may prove temporary as markets remain broadly wary of risk.
In Asian trade, the 10-year benchmark US bond yield was at 2.01 percent, higher than 1.98 percent in late US trade on Tuesday.
Oil was up at just over $113 a barrel, underpinned by expectations of lower US crude stocks after a storm disrupted production in the Gulf of Mexico, and optimism about a new support package for the US economy.
The minimum mandatory amount of deposits that banks need to set aside to invest in government bonds need to come down gradually, said Indian central bank governor Duvvuri Subbarao on Tuesday, sparking concerns of excess supply of gilts in the secondary market.
Some position cutting ahead of the bond auction on Friday also weighed. India will sell 110 billion rupees of government bonds on September 9.
"The 10-year bond yield may hold in a 8.25 to 8.35 percent band in the near term with domestic factors like high inflation, supplies continuing to limit a sharp downside and global economic conditions restricting the upside," Andhra Bank's Reddy said.
Traders said the only positive for the market was comments from the finance minister earlier this week.
India's central bank might not increase its key lending rate further as it will impact growth, the Business Standard newspaper reported on Monday quoting Finance Minister Pranab Mukherjee as saying.
Traders had been expecting the central bank to raise its key lending rate for the 12th time at its mid-quarter policy review on Sept. 16, but views are mixed now with industrial production and inflation data being awaited for clarity.
India's central bank remains bent on fighting domestic inflation despite weakening global conditions, officials with direct knowledge of policymaking said.
The benchmark five-year overnight indexed swap rate closed down 5 bps at 6.78 percent while the one-year rate ended steady at 7.62 percent.
Copyright Reuters, 2011
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