ENM: India bond yields ease slightly; outloook remains bearish
MUMBAI: Indian federal bond prices gained slightly for a second consecutive session on Thursday on bargain-hunting, with the outlook remaining bearish in light of reduced expectations for rate cuts or bond purchases from the central bank.
Traders said the 150 billion rupees ($2.70 billion) debt sale on Friday would remain a near-term trigger for bond markets. The government plans to raise 750 billion rupees in August alone, during a period when improved liquidity conditions are reducing the prospects of open market operations.
The Reserve Bank of India's hawkish statement after keeping rates on hold on Tuesday are also reducing expectations for rate cuts.
Doubts about the timing and scope of interest rate cuts could be exacerbated after the weather office said on Thursday rains during the monsoon season remain below average, raising the prospect of food inflation.
"With the visibility for rate cuts diminishing and the market clued on to heavy supply in August, I don't see yields falling much from current levels," said Prasanna Patankar, senior vice president at STCI Primary Dealer.
The benchmark 10-year bond yield eased 1 basis point to close at 8.22 percent from Wednesday's close. It had risen to as high as 8.28 percent on Tuesday, its highest in a month.
Patankar expects the 10-year yield to trade in a 8.15-8.30 percent range in the near-term.
Volumes were low at 103.65 billion rupees on the central bank's trading platform.
A risk-off environment could benefit bonds after both the rupee and Indian stocks edged lower on Thursday after the Federal Reserve refrained from new U.S. monetary stimulus, denting hopes for gains in global risk assets.
The focus shifted to the European Central Bank meeting later in the day, with hopes that new measures such as euro zone bond purchases could revive the demand for risk.
The benchmark 5-year overnight indexed swap rate closed down 4 bps at 7.04 percent, after rising to as high as 7.12 percent on Tuesday.
