Mumbai: Indian federal bonds rose on Friday as a cash crunch in the banking system eased, but gains were limited as traders were wary of buying aggressively ahead of weekly inflation numbers.
At 9:30 am local time the yield on the 10-year federal bond was at 7.91%, down from the previous close of 7.94%. Traded volumes were a normal Rs5.30 billion on the Reserve Bank of India’s (RBI) trading platform.
“Easing overnight cash rates have calmed sentiment. But the inflation numbers will be the highlight of the day and that will determine the trading pattern,” said Manoj Swain, head of trading at Standard Chartered Bank, India.
A Reuters poll found the wholesale price inflation rate is expected to edge up to 6.51% for the 12 months to 10 March from 6.46% a week earlier. The data will be released at noon.
The overnight cash rate, the rate at which banks lend funds to each other, was around 8% on Friday, well below highs of 70% earlier this week that were sparked by a cash shortage.
Dealers said end-of-year buying of bonds by banks to prop up valuations ahead of the end of the fiscal year on 31 March was supportive, but worries about inflation would persist.
“Sentiment in the bond market is likely to remain bearish ... due to apprehension over future monetary measures to contain inflation. Inflation is likely to remain around 6.0% to 6.5% levels for the remainder of the year,” IDBI Capital Markets said in a note.
The RBI expects inflation at 5.0% to 5.5% by fiscal year-end.
The market was also waiting for details on next week’s auction of market stabilisation scheme (MSS) bonds, which the RBI resumed selling this month after a gap of more than 18 months.