Indian bond yields flat

Indian federal bond yields ended steady on Friday as dealers preferred to stay on the sidelines in the absence of fresh triggers, with demand for next week's 100-billion rupee ($2.18 billion) auction eyed for cues. The government had cut the notified amount of the bond auction on December 10 and December 24, by 50 billion rupees to 60 billion rupees citing tight cash condition in the banking system.
In the current financial year to end-March, the federal government aims to raise 4.88 trillion rupees through bonds and treasury bills. Of this, it has so far borrowed 3.35 trillion rupees on a net basis. Yield on the most-traded 8.08 percent, 2022 bond and the second-most traded 8.13 percent, 2022 percent ended steady from previous close at 8.18 percent and 8.16 percent.
The less liquid benchmark 10-year bond yield ended at 8.13 percent, down 1 basis point from previous close. Reserve Bank of India (RBI) Governor Duvvuri Subbarao said on Thursday all that could be "reasonably" done by the central bank to ease the liquidity situation had been done. Subbarao said spending by the federal government would be a big factor in determining the liquidity situation going ahead.
The government's cash balance had swelled on the back of windfall gains from last year's telecoms spectrum auction. As on January 21, the federal government's cash surplus with the RBI stood at 667.04 billion rupees ($14.6 billion). View that more monetary tightening from the central bank was inevitable given the sticky inflation also continued to weigh on bond yields, dealers said.
The RBI had raised its key lending and borrowing rates by 25 basis points (bps) each on Tuesday, in a widely expected move, and warned on persistently high inflation. In the overnight indexed swaps, the one-year rate ended steady at 7.35 percent while the benchmark five-year swap ended at 7.93 percent, down 5 bps.