MUMBAI: Indian federal bond yields and long-end swaps rose after the federal oil minister said there was no immediate plan to raise domestic fuel prices, dashing hopes the government would act to bridge the fiscal deficit.
Oil minister S. Jaipal Reddy said it was now up to the cabinet to decide on the thorny issue of reducing hefty subsidies on diesel, cooking gas and kerosene.
Investors abstained from bidding aggressively at the 160 billion rupee federal bond auction post the oil minister's statement, which saw devolvement of 6.33 billion rupees in one bond, said traders.
"Fuel price hike was highly expected, so today's news is a dampener," said Vivek Rajpal, India rate strategist at Nomura in Mumbai.
"The more the delay on the fuel price hike the more the burden on fiscal deficit."
Bonds yields came off 8 basis points this week till the last close on hopes the government may soon announce a reforms package, including moves to rein in the fiscal gap, which is widely expected to breach the 5.1 percent budget estimate for the current fiscal year. The central bank's view has been that it wants credible signs of fiscal consolidation from the government before it cuts rates.
The RBI will meet on Sept. 17 to review rates and economists expect it to hold rates steady, a Reuters poll showed.
The benchmark 10-year bond yield snapped a four-session fall to end 4 basis points higher at 8.20 percent.
India 5-year OIS rate was at a two-month high, up 6 basis points at 7.21 percent, while the 1-year rate ended 3 basis points higher at 7.77 percent.
Traders are now awaiting key macroeconomic data next week -- the July industrial output data to be released on Wednesday and August headline inflation on Friday, which are expected to give cues for the policy review on Sept 17.
Bonds market will also wait for advance tax outflows due next week to see how much the liquidity deficit rises in the system.
Absence of any government bond auction next week, however, is seen keeping supply pressures in check.
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