India's benchmark bond yields rose on Friday as September inflation remained above 9 percent, signalling more rate rises ahead, but came off the day's high after the cut-off at a federal auction lagged expectations, with two sales devolving. The 10-year bond yield ended at 8.78 percent, up 5 basis points from Thursday's close after pulling back from the day's high of 8.82 percent, a level last seen on August 28, 2008.
Total volume on the central bank's electronic trading platform was 92.55 billion rupees ($1.95 billion), in line with the average daily volume of 90 billion-100 billion rupees.
Hawkish comments from the central bank coupled with sticky inflation, which remained above 9 percent for a tenth straight month, is likely to keep the yields high, traders said. "I guess the bonds will remain fairly offered till the policy. We would also look at global developments," said Nirav Dalal, president and managing director of debt capital markets at Yes Bank.
A jump in fuel and power prices drove the wholesale price index up 9.72 percent from a year earlier, a touch lower than August's 9.78 percent print , girding the market for another rate rise even as policymakers around the world mull easing rates to stimulate a weak global economy. "When inflation runs as high as 9.8 percent, it is difficult to bring it down without compromising on growth. So we are trying to trade-off at this time on bringing down inflation even if it means bringing down growth," Reserve Bank of India (RBI)Governor D. Subbarao had said on Thursday.
Yes Bank's Dalal said probably one segment of the market bid closer to the market levels, whereas possibly a third of the issuance got bids at significantly higher yields, leaving the RBI with no choice but to devolve. The benchmark five-year overnight indexed swap rate closed at 7.40 percent from 7.35 percent, while the one-year rate ended 12 basis points higher at 8.16 percent from its previous close.
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