Mumbai: The federal bond yields edged up on Thursday in thin trade as investors pared positions ahead of bond auctions, but expectations of a rate cut in the near-term curbed any steeper rise.
The benchmark 10-year bond yield ended at 5.29%, above Wednesday’s close of 5.25%.
The yield hit 5.18% in the previous session, its lowest since May 2004, as falling inflation and slowing economic activity raised the prospects of further rate cuts after aggressive monetary easing in the last quarter of 2008.
It fell 254 basis points in 2008, its biggest yearly fall in seven years.
Volumes were light at Rs101.15 billion ($2.1 billion) on the RBI’s trading platform.
Traders said the market was unsure of the RBI’s next step and was awaiting further cues as 100-basis-point cuts in both its key policy rates had already been priced in.
The government will sell Rs100 billion of government bonds on Friday.
Data earlier in the day showed annual inflation fell to a near 10-month low of 6.38% in the third week of December. Inflation is currently well within the RBI’s forecast of around 7% and analysts expect it to moderate further to about 2% by March-end following a decline in global commodity prices.