Mumbai: Indian federal bond yields inched lower on bargain hunting after a recent sharp fall in prices, but volume was thin as high inflation and expectations of more policy tightening kept many investors on the sidelines.
At 9:55 am, the 10-year benchmark bond yield was at 8.32%, a shade lower from 17 June’s close of 8.33%. It had risen 15 basis points last week and had hit 8.42% on Friday, its highest since May 2002.
Total volume was a thin Rs4.4 billion ($102 million) on the central bank’s electronic trading platform, with the 10-year bond being the only instrument traded.
“There is no conviction in the market and the auction cutoffs will provide a near-term direction,” said Vivekananda, senior manager at Mumbai-based Syndicate Bank.
The central bank is selling Rs30 billion of bills on 18 June and Rs60 billion of bonds on 19 June.
Overnight cash rates were quoting around 8%, well above 6% when liquidity is adequate.
Cash availability has been squeezed following outflows of an estimated Rs250 billion toward advance tax payments, Kotak Mahindra Bank said. On 17 June, the central bank injected Rs50.15 billion via its daily money market operations.
Expectations of more policy tightening in the near term to rein in soaring inflation after a surprise rate hike by the central bank last week also weighed on sentiment, traders said.
India’s chief statistician Pronab Sen told Reuters on 17 June that headline inflation would hit double digits and was likely to hover around 8-9% for sometime before declining in the last quarter of 2008.