MUMBAI: Indian federal bond yields are expected to start lower on Thursday on hopes the central bank will soon begin easing its monetary policy stance, with improved liquidity also seen aiding sentiment.
However, traders will be cautious ahead of a 140 billion rupees ($2.68 billion) debt sale on Friday, and lined-up supplies will prevent a sharp fall in the yields.
Subir Gokarn, a deputy governor at the Reserve Bank of India, on Thursday said the country's inflation is slowing, as suggested by momentum indicators, and the ceiling for interest rates has been reached.
Banks borrowed 815 billion rupees through the RBI's liquidity adjustment facility on Wednesday, lower than 1.1 trillion rupees in the previous session.
The 10-year benchmark bond yield could open around 8.34 percent and trade in a 8.30-8.40 percent band, traders said. On Wednesday, it closed steady at 8.36 percent.
Traders will watch out for the weekly food inflation data due later in the day.
The RBI will also buy back 120 billion rupees of bonds on Friday.
India's Fixed Income Money Market and Derivatives Association will recommend to the central bank that it changes the basis for determining daily bands for trading government bonds to yield from price, three sources with direct knowledge of the matter said.
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