MUMBAI: Indian federal bond yields edged up on Tuesday as expectations heightened the central bank will raise its lending rate again on Friday, and tracking US Treasuries, which fell after a gain in equities curbed demand for safe-haven assets.
The 10-year benchmark bond yield was at 8.31 percent, up 2 basis points. Total volume on the central bank's electronic trading platform was a moderate 35.30 billion rupees ($751 million).
"Even though the IIP data was a dampener, still there is a worry on the inflation front. So there may be a 25 basis point hike, though it may be the last," said Roy Paul, deputy general manager for treasury at Federal Bank in Mumbai.
India's industrial output growth slumped to 3.3 percent in July, its weakest annual pace in nearly two years, reinforcing expectations the central bank will pause its monetary policy tightening after one more rate rise this week.
Traders are now awaiting August inflation data due on Wednesday for further cues on the central bank's stance.
India's wholesale price index (WPI) likely rose an annual 9.6 percent in August on higher food and fuel prices, a Reuters poll showed.
Another Reuters poll of 18 economists showed that a majority expected the Reserve Bank of India to raise its repo rate by another 25 basis points when it meets to review its policy on Friday.
"Bond yields are likely to be rangebound till the policy as traders will not take heavy positions ahead of the key data," a senior dealer with a state-run bank said.
Traders expect the yields to move in a 8.27-8.32 percent range intraday.
US Treasuries prices closed lower on Monday after late stock market gains and a report that Italy had asked China to buy Italian debt damped the bid for safe-haven US government debt.
The benchmark five-year overnight indexed swap rate was at 6.71 percent, 6 basis points higher from its previous close.
The one-year rate was up 5 basis point at 7.64 percent.
Copyright Reuters, 2011
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