MUMBAI: Indian federal bond yields edged up amid mild bouts of profit-taking on Thursday as the absence of fresh triggers prompted investors to stay light though robust demand at the foreign investor debt limit sale kept sentiment positive.
India's auction of quotas allowing foreign investors to buy bonds attracted solid demand, reflecting expectations that the central bank will cut interest rates and that the government will deliver a fiscally disciplined budget.
Traders said the lack of an open market operation announcement so far this week was a dampener but they are hopeful the central bank would announce one in the coming weeks if cash deficit continued to remain high.
Banks' borrowing from the central bank's repo window remained above 1 trillion rupees for the tenth straight session.
"There is no auction until end-March and no open market announcement so far as well, so until the budget there is nothing major expected, hence 10-year bond will hold in a range," said Arvind Chari, a senior fixed income fund manager with Quantum Asset Management.
"Next year's gross market borrowing should be around 5.7 trillion to 6 trillion rupees. If it is around 5.7 trillion, then the market will rejoice a bit. With no supply and likely rate cut in March, that should take the 10-year yields lower, heading into policy," he added.
The benchmark 10-year bond yield closed up 1 basis point (bp) at 7.81 percent. Total volumes on the central bank's electronic trading platform was at a slightly lower 330 billion rupees compared to the average 350 billion rupees.
A growing chorus of analysts expect India to keep net borrowing below 5 trillion rupees ($92.45 billion) for the next fiscal year starting in April.
The 10-year bond yield is broadly expected to hold in a 7.75 to 7.83 percent range until the budget.
In the overnight indexed swap market, the five-year OIS rate edged down 2 bps to 7.24 percent while the one-year rate also closed down 2 bps at 7.62 percent.