MUMBAI: Federal bond yields closed steady on Friday after easing to their lowest in more than 5-½ months during the day as worries over euro zone's debt crisis triggered demand for safe-haven government bonds. The yield on India's 7.80 percent 10-year benchmark bond ended at 7.38 percent, off an intraday trough of 7.32 percent, its lowest since Dec. 1, 2009, but steady from Thursday's close.
Results of a government debt sale hit sentiment by close of trade, dealers said. Cut-off yields on two of the three bonds auctioned by the Indian central bank earlier in the day was higher than estimates in a Reuters poll, pushing traders to unwind their long positions.
The government sold three bonds worth 130 billion rupees ($2.8 billion) on Friday. Volume was a heavy 164.55 billion rupees on the central bank's trading platform. "Our markets have now started believing with all of euro zone's problems, that it is best to stay invested in bonds and expect the rally to continue," said Anoop Verma, associate vice president at Development Credit Bank in Mumbai. U.S. Treasury note futures pushed higher in Europe on a flight to quality due to persistent concerns about the euro zone's debt problems.
Reserve Bank of India (RBI) Governor Duvvuri Subbarao said on the Thursday the Greece crisis was unlikely to affect capital inflows. Subdued global oil prices raised expectations of headline inflation easing in the coming months and traders said it eased the pressure on the RBI to raise policy rates. Oil is India's biggest import and a fall in crude prices calms concerns about price pressures in Asia's third-biggest economy.
India's food price inflation picked up for the second straight week in early May, but with headline inflation seen cooling and uncertainty over the impact of euro zone sovereign debt crisis, the central bank is unlikely to raise rates ahead of its July policy review. The benchmark five-year interest rate swap ended at 6.36 percent, from the previous close of 6.41/44 percent. In interest rate futures on the National Stock Exchange, the June contract implied a yield of 8.1902 percent, while the September contract was at 8.1091 percent.
