Indian federal bond yields ended lower on Friday after the cut-off for the benchmark bond yield came below market expectations, and eurozone concerns fuelled demand for safe haven debt. "The market was expecting higher yields. The cut-off for the 7.80 percent bond came at 8.47, though the market was expecting it in the range of 8.49-8.50.
That has changed the mood," a trader with a state-run bank said. The euro's losses also supported sentiment, leading to the long-end overnight indexed swap rates easing, he said. The euro fell to a session low versus the dollar on Friday as traders cited media reports saying Europe's rescue fund may not be in a position to lend Greece its second tranche of loans.
The 10-year benchmark bond yield closed at 8.45 percent, compared with its previous close at 8.47 percent, after trading in a 8.44-8.48 band. Total volumes on the central bank's electronic trading platform were slightly lower at 63.75 billion rupees ($1.44 billion), compared with the usual 90 billion-100 billion rupees traded on a normal day.
The cut-off price for the 7.80 percent federal bond maturing in 2021 was 95.60 rupees, yielding 8.4716 percent, below 8.4873 percent estimated in the Reuters poll. Traders said though the yields have eased, the possibility of further monetary actions and high inflation will keep an upward pressure on the yields.
"I think it (easing) will be for a brief period. Looking at everything, the 50 basis point hike, the market sentiment is not very positive," said Gaurav Gupta, manager of fixed income at Corporation Bank.
"In its policy, the RBI (Reserve Bank of India) has given a sense that a pause is still far away," Gupta said. Expectations for interest rate increases in India for the remainder of 2011 have jumped by 50 basis points after the hefty increase on Tuesday, a Reuters snap poll found. The benchmark 5-year rate ended down 10 basis points at 7.50 percent and the one-year overnight indexed swap rate was down 3 basis points at 8.29 percent.