MUMBAI: Federalbond yields eased on Monday on expectations of demand from foreign investors after the market regulator announced an auction for the remaining unsold limit of long-term government bonds.
However, higher oil prices averted a bigger drop in yields. At 11:11 a.m. (05410 GMT), the 10-year benchmark bond yield was down 5 basis points on the day at 8.40 percent after easing to 8.39 percent.
Volumes were a moderate 55.60 billion rupees ($1.3 billion) on the central bank's trading platform.
The one-year overnight indexed swap rate was down 1 basis point at 8.28 percent while the benchmark five-year rate was down 5 basis points at 7.45 percent.
"The main reason for the drop in yields is the debt limit auction for foreign institutional investors, but oil is high," said a senior trader at a state-run bank.
Late last Friday, India's stock market regulator said it would auction the unutilised limit in long-term government bonds to foreign institutional investors on Aug. 5.
Crude prices climbed more than $1 on Monday, sending Brent above $118, after U.S. President Barack Obama said congressional leaders agreed on a deal to raise the nation's borrowing limit and avert a default by the world's top oil consumer.
Traders see the 10-year bond yield to be boxed in the range of 8.39-8.45 percent intra-day.
Traders said there was also some short-covering supporting bonds in addition to the weak manufacturing PMI data.
Indian factory growth fell for the third month in a row in July as a long series of interest rate hikes and faltering global demand weighed on new orders and output growth, a survey showed on Monday.
U.S. Treasury debt futures fell slightly in early Asia electronic trade as U.S. lawmakers thrashed out a deal to solve the country's debt crisis but not quite through the impasse.
President Barack Obama on Sunday announced a last-minute deal to raise the U.S. borrowing limit and urged lawmakers to "do the right thing" and approve the proposed agreement to avert a catastrophic default.
Now that top lawmakers have sealed a deal, both the Senate and House of Representatives are expected to vote on Monday and in principle a bill could be on Obama's desk by nightfall. While Senate approval is likely, the agreement's fate may be less certain in the House.
