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 MUMBAI: Indian federal bond yields edged higher in narrow trade on Monday, as caution ahead of heavy government debt supply was offset slightly by lower oil prices and expectations of an end to the monetary tightening cycle by the central bank.

10-year benchmark bond yield was 1 basis point higher at 8.85 percent. The most traded 8.13 percent 2022 bond , which was part of the auction papers on offer last week , was steady at 8.91 percent.

Total volumes on the central bank's electronic trading platform were at a low 28.55 billion rupees ($583.8 million) compared to the normal about 50 billion rupees dealt in the first two hours of trade.

"US yields are lower, oil prices are down giving hopes that inflation will trend lower, while lined-up debt supplies also continue to hurt," said Debendra Dash, a fixed-income trader with Development Credit Bank.

The government has said it would sell debt worth 2.2 trillion rupees, sharply above the budgeted 1.67 trillion rupees, in the October to March period.

Traders expect the benchmark bond to trade in 8.84 to 8.88 percent range and the 8.13 bond to trade in a 8.90 to 8.94 percent range in the day.

They were jittery about holding the benchmark 10-year bond on expectations that it would not be widely traded going forward and said the benchmark bond may be auctioned only once more, with the total outstanding at 680 billion rupees. Though there is no limit, they believe the bond will not see issuances of more than 750 billion rupees.

India's central bank raised interest rates on Tuesday for the 13th and possibly final time in a tightening cycle that began in early 2010, on expectations that persistently high inflation will finally begin to ease starting in December.

The benchmark five-year swap was steady at 7.49 percent on Friday and one-year rate fell 1 basis point to 8.24 percent.

Oil prices fell on Monday, with traders cautious ahead of the Group of 20 leaders' meeting later this week that will focus largely on the European debt crisis.

Euro zone leaders reached a deal last week to recapitalize their banks, strengthen the euro zone rescue fund and impose hefty losses on holders of Greek debt, and the market was looking for more positive news out of the euro zone to provide a floor for prices.

US Treasuries prices rose on Friday as lower prices and the highest yields in more than 2-1/2 months attracted buyers.

In Asian trade, the 10-year US benchmark bond yield was at 2.30 percent from 2.31 percent in late New York trade on Friday, when it had dropped 9 basis points.

 

Copyright Reuters, 2011