Indian bond yields in narrow range; auction eyed

Indian federal bond yields were largely steady on Monday supported by ample cash conditions in the banking system but impending debt supplies prevented traders from adding aggressive positions.

The yield on the benchmark 10-year bond IN063520G=CC ended up one basis point at 8.07 percent after trading in the 8.06-8.10 range. Volumes were a heavy 81.45 billion rupees ($1.8 billion) on the central bank's trading platform.

"The market will be guided by what auction securities are announced for this week," said K. Ramkumar, head of fixed income at Sundaram BNP Paribas Mutual Fund.

After market hours, the government said it would sell 50 billion rupees each of the of the 7.38 percent bonds maturing in 2015 and a new 10-year bond along with 20 billion rupees of the 8.28 percent bonds maturing in 2032 on Friday.

Dealers said the announcement of a new 10-year bond sale would result in a sell-off in the existing 10-year benchmark bond and volumes would shift to the new bond eventually, leaving the current benchmark bond illiquid.

Traders are worried about the market's capacity to absorb the wall of weekly supplies as the government looks to sell 2.87 trillion rupees of bonds in the April-September period against the backdrop of the central bank tightening policy to reign in inflation.

The government has already sold 370 billion rupees of bonds since the beginning of April.

Banks parked 482.90 billion rupees in the central bank's reverse repo window on Monday, which assured the market that cash conditions in the banking system are abundant.

This was despite the 25 basis point cash reserve ratio hike which took effect on Saturday, draining about 125 billion rupees from the banking system.

Traders said they would also keep an eye on the outcome of the U.S. Federal Reserve's two-day policy meeting on Wednesday. The Fed is expected to keep interest rates unchanged near zero and repeat its pledge to keep them low for an extended period. [ECI/US]

In interest-rate futures on the National Stock Exchange, the June contract N10M0 implied a yield of 8.2814 percent.

The benchmark five-year interest rate swap ended at 6.90/93 percent, unchanged from Friday's close. [IN-SWAPS] ($1 = 44.4 Rupees)

Source: http://in.reuters.com/article/companyNews/idINSGE63P0NV20100426?pageNumber=2&virtualBrandChannel=0