Mumbai: The bond yields ended lower on Thursday after a choppy session, though with underlying sentiment positive on expectations that the central bank may not move immediately to hike rates.
Traders were also optimistic that good revenues from an ongoing auction of third-generation (3G) mobile spectrum licences will help the government to manage its fiscal deficit, which is pencilled in at 5.5% of GDP for 2010-11.
The yield on the most traded 8.20% bond maturing in 2022 was at 7.76%, down three basis points on the day.
The yield on the new 10-year benchmark bond, the 7.80% maturing in 2020, closed down four basis points at 7.51% after rising as high as 7.58% after food price data.
Volumes were heavy at Rs212.80 billion ($4.7 billion) on the central bank’s trading platform.
“The market is unpredictable and I don’t think it is going by any definite cues. It is moving in a range so we are just taking short positions,” said Sanjay Arya, deputy general manager of treasury at state-run Bank of Maharashtra.
“The factors supporting prices are weaker industrial data, with global events supporting expectations that the central bank may not be in a hurry to hike rates.”
Industrial output grew more slowly than expected in March at 13.5% year-on-year, data showed on Wednesday.
A Reuters poll showed the wholesale price index probably rose 9.5% in April from a year earlier, from 9.9% in March. Data is due around noon on Friday.
If data on Friday indicates inflation is easing it will further boost market confidence that the central bank won’t move immediately to hike rates.
Bond yields rose slightly after weekly food inflation data snapped a two-week declining trend in late April, though traders preferred to watch Friday’s monthly data for clues on inflation.
A central bank deputy governor said on Thursday that the pace of exit from the bank’s loose monetary policy takes into account that the global economy is still not stable.
Bids for one set of the 3G mobile spectrum licences in India reached Rs144.66 billion on Wednesday, the 28th day of an auction, an indication the government could earn revenue of about Rs584 billion from the auction, higher than the budgeted estimate of 350 billion.
The government is due to sell Rs120 billion of bonds on Friday as part of a plan to raise Rs2.87 trillion in April-September, and traders will watch the auction results to gauge market appetite for debt.
Demand for replacing a bond worth 254.20 billion, which matures on Friday was also supporting the debt market, traders said.
In interest-rate futures on the National Stock Exchange, the June contract implied a yield of 8.2165% while the September contract yielded 8.1091%.
The benchmark five-year interest rate swap ended at 6.47/51%, from its previous close of 6.50/52%.