Mumbai: The federal bond yields fell to more than one-week low on Thursday as traders covered their short positions after inflation came in as expected.
The wholesale price index (WPI) rose 7.31% in December from a year earlier, driven by higher food prices. It matched a median forecast in a Reuters poll and was higher than previous month’s annual rise of 4.78%.
The 6.90% 2019 bond yield ended at 7.68%, its lowest since 5 January. It had ended at 7.76% in the previous session.
The yield on the most traded 6.35% bond maturing in 2020 fell eight basis points to 7.63%.
Total volume was a moderate Rs92.4 billion ($2 billion) as per the Clearing Corp of India.
Traders said short positions had risen after robust November factory output on Tuesday, followed by China’s policy tightening. With inflation coming within market expectations, there was some relief, a trader at a state-run bank said.
The market expects the Reserve Bank of India (RBI) to tighten liquidity by increasing the cash reserve ratio on 29 January, he said.
Traders now await a Rs100 billion bond auction on Friday to gauge the demand, but largely expect bonds to trade in a narrow range until the policy review.
In interest-rate futures on the National Stock Exchange (NSE), the March contract implied a yield of 8.1660 while the June contract implied 8.1652%.
The benchmark five-year swap rate ended at 6.88/91%, below its previous close of 6.91/95.