Mumbai: The federal bond yields eased on Thursday after inflation rate for end-September unexpectedly slowed, giving a brief respite to the market in the backdrop of uncertainties over the timing of exit from easy money policy.
The widely watched wholesale price index (WPI) rose by 0.7% in the 12 months to 26 September, below both market forecasts and the previous week’s 0.83% annual rise.
The benchmark 10-year bond yield closed at 7.22%, after falling as low as 7.17% after the data. It had ended at 7.25% on Wednesday.
Volumes were a heavy Rs97.75 billion ($2.1 billion) on the central bank’s trading platform.
“The market does not have a definite direction and inflation data was a small trigger,” said Sanjay Arya, deputy general manager, treasury, at state-run Bank of Maharashtra.
“Since the last few days there has been some selling, so short covering also may be there but yields are moving in a very narrow range,” he added.
Bond yields also found support from the finance minister’s comments after market hours on Wednesday that India needs more time before deciding on an exit from accommodative policy.
The finance minister’s statement came after the central bank governor said on Monday that there was broad agreement India needed to step back from its easy policy stance, but timing was delicate.
Dealers said they would watch for South Korea’s rate decision on Friday after Australia became the first among the G20 countries to hike rates on Tuesday.
A Reuters poll, conducted before the Australian rate rise, showed seven out of 15 analysts expect the Bank of Korea to raise its base rate in November. The rest predicted a raise in the first quarter of 2010.
Results of the government’s Rs100 billion bond auction on Friday will be watched after disappointing results at the treasury bills and state loan auctions this week, traders said.
“Yields may rise tomorrow because of the auction and the benchmark 10-year bond is also on sale,” Arya of Bank of Maharashtra said.
In interest rate futures on the National Stock Exchange (NSE), the December contract was implying a yield of 7.9846%, higher than 7.9612% on Wednesday.
The benchmark five-year interest rate swap was at 6.81/86%, almost steady at its previous close of 6.80/85.