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indian-bondsMUMBAI: Indian federal bond yields rose for the third straight session on Wednesday as another sale of cash management bills (CMBs) raised concerns about the government's fiscal position and spooked investors.

The government will sell 42-day CMBs worth 90 billion rupees ($1.8 billion) on Wednesday, the central bank said in a statement after the market closed on Tuesday. It sold 42-day bills worth 60 billion rupees on Tuesday.

"The fresh supply of CMBs will take the total government borrowing this week to 420 billion rupees compared with a normal 200 billion rupees, putting an upward pressure on yields," a senior trader with a foreign bank said.

At 11:30 a.m. (0600 GMT), the yield on the new 10-year paper, the 8.79 percent 2021 bond, rose to 8.94 percent from Tuesday's close of 8.85 percent.

The yield on the 7.80 percent 2021 bond also rose to 9.10 percent from 9.03 percent at previous close.

Total volumes on the central bank's electronic trading platform were lower at 38.20 billion rupees, compared with the normal 50 billion to 60 billion rupees dealt in the first two and half hours of trade.

"Due to the government resorting to regular short-term borrowings, banks are unable to have even short term plans," said Anoop Verma, an associate vice president at Development Credit Bank.

"The yields should continue to rise with doubts of government's fiscal slippage and as the market is in no mood to buy bonds because of the incessant supply."

The government will also auction 80 billion rupees of treasury bills on Wednesday, and is scheduled to offer 130 billion rupees of bonds on Friday.

Sluggish tax receipts and high refunds have added to the government's fund mismatches, prompting the issue of short-end bills.

India's fiscal deficit reached almost 71 percent of its full-year target in the first half of the year, while the current account deficit widened to $14.1 billion in the June quarter.

The benchmark five-year swap at 7.50 percent from Tuesday's close of 7.42 percent and the one-year rate at 8.31 percent from 8.26 percent.

Copyright Reuters, 2010