MUMBAI: Indian federal bond yields nudged higher on Wednesday as traders pared positions ahead of a widely expected 25 basis points rate increase when the central bank announces policy decision at 0630 GMT on Thursday.
A Reuters poll this week forecast the central bank would probably raise key rates by a total of 75 basis points in calendar 2011.
"There is some nervousness in the market ahead of the policy tomorrow," said Chetan Shenoy, an associate vice president, fixed income at IndusInd Bank in Mumbai. "I expect the 2022 bonds to hold in a 8.05-8.10 percent range until the policy."
At 11 a.m. (0530 GMT), the yield on the most-traded 8.08 percent 2022 was 2 basis points higher at 8.10 percent, while the second most-traded 8.13 percent 2022 bond was up 1 basis point at 8.09 percent.The less liquid benchmark 10-year bond yield was 1 basis point higher at 7.97 percent.
The benchmark five-year swap rate rose 3 basis points to 7.87 percent and the one-year swap climbed 4 basis points to 7.34 percent.
Traders said a drop in US yields and lower global crude would prevent any major uptick in local bond yields.
Fears over the impact from Japan's earthquake and nuclear crisis drove US Treasury debt yields to a three-month low on Tuesday, feeding expectations benchmark yields might fall to 3 percent.
In Asian trade, the 10-year US bond yield was at 3.31 percent, compared with 3.32 percent in late New York trade, when it had dropped to 3.21 percent, its lowest intra-day level since Dec. 10.Brent crude fell more than $1 on Wednesday to a three-week low near $107 as pessimism about Japan's nuclear crisis offset concern about Middle East unrest after Bahrain declared martial law.
Traders would also watch the results of an 80-billion-rupee treasury bill sale expected after 0900 GMT.
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