MUMBAI: Indian federal bond yields and swap rates eased on Friday tracking a drop in U.S. Treasury yields overnight, but traders said the results of a $2.6-billion-rupee bond auction would set the trend.
The government is selling 40 billion rupees of 7.46 percent bonds maturing in 2017, 50 billion rupees of 8.13 percent 2022 bonds and 30 billion rupees of 8.30 percent 2040 bonds on Friday.
The results are due after 0900 GMT. "The auction will be well bid and yields should move a bit lower on short-covering and global cues," said a senior trader with a foreign bank.
At 10:07 a.m. (0437 GMT), the yield on the 10-year benchmark bond was at 7.93 percent, down one basis point from Wednesday's close after easing to 7.91 percent in early deals.
The bond and forex markets were closed on Thursday for a local holiday. The 10-year yield had risen 12 basis points in the previous two sessions as traders trimmed positions ahead of the bond sale.
Volumes were low at 16.45 billion rupees ($353 million) on the central bank's trading platform.
The benchmark five-year swaps rate fell seven basis points at 7.02 percent, Thomson Reuters data showed. The one-year swap rate dropped three basis points to 6.23 percent.
U.S. Treasuries rose on Thursday, with two-year yields hitting record lows after dismal factory and jobless claims data signaled new trouble for the economy and the likelihood of prolonged low interest rates.
Crude was steady near a six-week trough below $75, after weak U.S. economic data signalled the world's top oil-consuming nation will struggle to work through the most ample petroleum inventories in two decades.
Dealers said selling in the benchmark 10-year bond was also on concerns that the central bank may cease issuance of that bond soon as the outstanding was already high at 400 billion rupees.
"It (benchmark bond) should continue to underperform. I think most of the selling for today's auction has already happened," said another trader at a foreign bank.
