MUMBAI: Indian federal bond yields were steady to higher on Monday as investors stayed on the sidelines ahead of the central bank's monetary policy review on Tuesday, with sentiment for safe-haven debt dampened by a return to riskier assets globally.
Higher global crude oil prices and hopes of resolution of the euro zone crisis spurred buying of riskier assets, traders said.
10-year benchmark yield yield was up 1 basis point at 8.83 percent. It has moved in a range of 8.82 percent to 8.86 percent so far.
Total volumes on the central bank's electronic trading platform were at a low 8.85 billion rupees ($177 million) compared to the normal 35 billion to 45 billion rupees dealt in the first two hours of trade.
"Bond market is taking cues from international crude prices and the policy tomorrow, therefore some jitteriness seen," said Dinesh Ahuja, a fixed income fund manager with SBI Funds Management.
Brent crude rose above $110 a barrel on Monday after European leaders made some progress over the weekend on a plan to fight the euro zone debt crisis, while manufacturing data from China also supported sentiment.
Longer-dated US Treasury debt prices fell for the fourth day in a row on Friday.
The Reserve Bank of India will review its monetary policy on Tuesday, where it is widely expected to deliver one final interest rate increase and then pause until the end of the fiscal year in March, a Reuters poll earlier last week showed.
"The market is expecting a 25 bps increase in rates tomorrow but still it would cause a sell-off in bonds, taking the 10-year yield close to 8.90-9.00 percent levels, while a pause will help it rally to 8.65 percent," said Anoop Verma, an associate vice president with Development Credit Bank.
The benchmark five-year swap was 2 bps higher at 7.47 percent, while the one-year rate was flat at 8.31 percent.
The market is also wary of adding positions ahead of ht lined-up supplies, traders said.
The government will sell 150 billion rupees ($3 billion) of bonds on Friday, the central bank said last week.
India's main share index was up 1.8 percent with index heavyweight Reliance Industries and ICICI Bank leading the gains.
The domestic debt market will be closed on Wednesday and Thursday for local holidays.
Copyright Reuters, 2011