MUMBAI: Indian federal bond yields and swap rates rose on Wednesday on the back of an overnight rise in U.S. yields and global oil prices, with traders also cutting positions before Friday's $3.3 billion debt sale.
At 10:25 a.m. (0455 GMT), the 10-year benchmark bond yield was up 3 basis points (bps) at 8.31 percent. Total volumes on the central bank's electronic trading platform were at a low 7.90 billion rupees ($176 million), compared with the normal 20-30 billion rupees dealt in the first hour and half of trade.
"Yields are up tracking U.S. yields and oil prices. The sentiment is anyways bearish ahead of the auction," said Debendra Dash, a fixed income dealer with Development Credit Bank .
"Further upside will depend on the outcome in Greece. If Greece is able to pass the austerity measures then we may see the 10-year yield inching up to 8.35 percent," he added.
U.S. Treasury prices fell on Tuesday as expectations Greece will approve an austerity plan to win financial aid and avoid a debt default dampened the bid for safe-haven debt.
The 10-year benchmark U.S. notes were at 3.02 percent in Asian trade, compared with 3.04 percent in late New York trade on Tuesday, when it had risen sharply from Monday's close of 2.93 percent.
Brent crude steadied on Wednesday above $108 a barrel on growing optimism that the debt crisis in Greece will be resolved and underpinned by a tropical storm in the Gulf of Mexico.
India will sell bonds worth 150 billion rupees on Friday, including the benchmark 10-year bond.
The government could issue more cash management bills soon as the uncertainty of direct tax refunds continues, a senior finance ministry source with direct knowledge told Reuters on Tuesday.
Traders will watch the results of 90 billion rupees of treasury bills sale due after 0900 GMT for direction.
The benchmark five-year swap rate was up 5 bps at 7.73 percent, while the one-year rate rose 3 bps to 8.03 percent.
"Combination of slower economic activity and high deposit interest rates has led to a moderation of credit growth and more deposit accretion. As a result, the gap between deposit and credit growth has improved," economists at Nomura said in a note on Wednesday.
"A rising deposit-credit growth gap has historically led to a diversion of excess inflows into statutory liquidity requirement securities -- mainly government securities. Therefore, although the government is likely to miss its budget deficit target this year, increased bank demand for government securities should be positive for yields," they wrote.
