Indian 10-year bond yield jumps

India's 10-year benchmark federal bond yield rose to its highest in a week on Friday as the central bank deputy's comments sparked expectations that a rate pause may not be imminent. All eyes were on US Fed Chairman Ben Bernanke's speech in Jackson Hole, Wyoming scheduled for 1400 GMT, with markets eager to hear what the Fed's plan is to help a struggling US economy, although the growing consensus was that its options are limited.
The yield on the 10-year benchmark bond ended up 6 basis points at 8.30 percent after rising as high as 8.32 percent, its highest since August 18. The 10-year bond yield is still down 15 basis points so far this month, mainly on global risk aversion.
Volumes were a heavy 109.15 billion rupees ($2.4 billion) on the central bank's trading platform. "The market view is that inflation control will remain the primary objective of the central bank and there could be one more rate hike before a pause," said Harihar Krishnamoorthy, treasurer at First Rand Bank in Mumbai.
India's central bank warned on Thursday against accepting high inflation as the "new normal," adding that the outlook for the country's industrial sector remained uncertain amid high input costs and weak global conditions. Changing expectations on domestic monetary policy also saw the front-end of the overnight indexed swap (OIS) curve posting a sharper rise. The one-year rate closed up 8 basis points at 7.72 percent.
The benchmark five-year overnight indexed swap rate ended up 4 basis points at 6.94 percent. The negative spread between the two OIS rates widened to negative 78 basis points from 74 basis points at the close on Thursday. Last week, the negative spread was 97 basis points, its most since at least October 2008, according to Thomson Reuters Data.