Indian federal bond yields rose from intraday lows on Thursday as some investors pared positions ahead of a debt sale on Friday, but hopes the central bank may cut interest rates further curbed a sharper rise.
The 10-year bond yieldended at 5.55 percent, off the day's low of 5.47 percent but still below Wednesday's close of 5.58 percent.
Volumes were heavy at 121.20 billion rupees ($2.5 billion) on the central bank's trading platform, with the 10-year bond being the most heavily traded.
At the day's low, the benchmark yield had fallen 73 basis points this week. In the previous week, it rose 113 basis points due to concerns over heavy government borrowing.
Dealers said they would watch cut-off levels at the federal debt auction due on Friday for further cues.
"Cut-off yields at the debt auction are likely to be slightly higher than those in the secondary market as abundant supply exists," said Bekxy Kuriakose, head of fixed income at DBS Chola Mutual Fund.
Annual inflation fell to a 11-month low of 5.24 percent in early January compared with 5.91 percent in the previous week, marginally below a Reuters poll of 5.28 percent.
Analysts said the fall and expectations of a further cut in fuel prices would give the central bank room to cut rates to revive the slowing economy at its next monetary policy review on Jan. 27.
Other economists said the bank may hold off, preferring to assess the impact of the aggressive moves already taken.
Since mid-October, the central bank has cut the repo rate, at which it lends to banks, by 350 basis points as high borrowing costs and global financial crisis took a toll on economic growth.
"We expect an additional 100-150 basis points easing in policy rates in the coming months," Citigroup said in a note. ($1 = 49 rupees)
The 10-year bond yield
Volumes were heavy at 121.20 billion rupees ($2.5 billion) on the central bank's trading platform, with the 10-year bond being the most heavily traded.
At the day's low, the benchmark yield had fallen 73 basis points this week. In the previous week, it rose 113 basis points due to concerns over heavy government borrowing.
Dealers said they would watch cut-off levels at the federal debt auction due on Friday for further cues.
"Cut-off yields at the debt auction are likely to be slightly higher than those in the secondary market as abundant supply exists," said Bekxy Kuriakose, head of fixed income at DBS Chola Mutual Fund.
Annual inflation fell to a 11-month low of 5.24 percent in early January compared with 5.91 percent in the previous week, marginally below a Reuters poll of 5.28 percent.
Analysts said the fall and expectations of a further cut in fuel prices would give the central bank room to cut rates to revive the slowing economy at its next monetary policy review on Jan. 27.
Other economists said the bank may hold off, preferring to assess the impact of the aggressive moves already taken.
Since mid-October, the central bank has cut the repo rate, at which it lends to banks, by 350 basis points as high borrowing costs and global financial crisis took a toll on economic growth.
"We expect an additional 100-150 basis points easing in policy rates in the coming months," Citigroup said in a note. ($1 = 49 rupees)
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