MUMBAI: Indian bond yields posted their biggest weekly rise for the week, following warnings on inflation from central bank officials and a rally in global crude prices.
The benchmark 10-year bond yield closed down 2 basis points at 8.24 percent on the day, after India sold 150 billion rupees in bonds that matched aggressive cut-offs predicted by a Reuters poll of analysts.
However, yields rose 8 bps for the week, its biggest rise since the week ended Aug. 3, while OIS swap rates also surged.
Bond markets will be closed on Monday for a public holiday.
"Constant warning calls on inflation and government inaction has caused a sell-off in bonds this week," said Anuj Tagra, a fixed income dealer with state-run Union Bank of India.
"The market is waiting for some direction from the government on the fiscal front to give scope for the RBI to move on rates," Tagra said.
Advisers to India's prime minister issued a stern warning to the government on Friday on the need to rein in the country's fiscal and current account deficits to avoid the risk of a credit ratings downgrade to junk status.
This warning comes after Reserve Bank of India Governor Duvvuri Subbarao on Monday, and RBI Deputy Governor Subir Gokarn on Thursday, warned about inflationary pressures, reducing the prospects of interest rate cuts at the central bank's mid-September policy review.
Analysts warned the decline was likely to be temporary, while the warnings from the RBI officials and the surge in crude prices weighed more.
Brent crude rose to three-month high this week, raising fears continued gains would spark inflationary pressures in a country that imports two-thirds of its crude needs, although prices fell some on Friday.
The country's one-year overnight index swap rate fell 2 bps to 7.79 percent, but rose 6 bps for the week.
The five-year rate fell 3 bps to 7.14 percent on Friday, but rose 13 basis points for the week.
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