MUMBAI: Indian federal bond yields edged down on Monday as global uncertainties and a worsening European sovereign debt crisis fuelled expectations the central bank may keep rates unchanged later this week when it meets to review monetary policy.
A sharp fall in US Treasury yields on Friday also aided.
"The probability of a rate hike has decreased from 70 percent last week to 50 percent this week after the G7 statements," said a foreign bank dealer.
Group of Seven finance ministers agreed on Friday to respond in concert to a slowdown in the global economy but produced no concrete action to calm markets spooked by signs of faltering growth and Europe's debt crisis.
The 10-year benchmark bond yield was at 8.28 percent, down from Friday's close of 8.31 percent, and is expected to move in 8.25-8.30 percent range.
Total volume on the central bank's electronic trading platform was a moderate 30.15 billion rupees ($643 million).
The benchmark five-year overnight indexed swap rate was at 6.64 percent from previous 6.77 percent, and the one-year rate was 7.53 percent from 7.63 percent.
Dealers will closely watch the industrial output data for July, scheduled for release at 11 a.m. (0530 GMT), for cues on the central bank's rate stance.
Many dealers say July industrial output probably grew just 4 percent, lower than the 6.2 percent forecast in a Reuters poll last week, crimped by successive rate rises.
The data, along with August inflation on Wednesday, will give more clarity about the central bank's rate decision on Friday.
However, a Reuters poll of economists showed the Reserve Bank of India is widely seen delivering the last rate increase in its 18-month long tightening cycle on Friday as inflation pressures continue to remain strong.
Last week, officials with direct knowledge of policy making in the central bank maintained that fighting inflation was the top priority, while senior government functionaries have stressed the need for a pause.
"We will be cautiously positive as there is no auction scheduled this week, but policy stance is still not clear," said a private bank dealer.
In Asian trade, the US 10-year benchmark note was steady at 1.92 percent, after falling sharply by six basis points on Friday.
Fears about a Greek default rose after senior politicians in German Chancellor Angela Merkel's centre-right coalition started talking openly about it.
Copyright Reuters, 2011
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