* 10-year bond yield rises 2 bps to 7.76 pct
* Parliament deadlock threatens passage of key bills
* Near-end swap falls to 28-mth low in session
By Subhadip Sircar
MUMBAI, April 29 Indian federal bond yields rose on Monday as dealers kept positions light on caution ahead of the central bank's rate decision on Friday and on resumption of supply.
The Reserve Bank of India is widely expected to lower its key benchmark repo rate by 25 basis points for the third time this year, but dealers are closely watching if the central bank signals further monetary easing after recent falls in global commodity prices.
"We expect the tone of forward guidance to shift from hawkish to neutral. We expect the RBI to signal that there is some scope for further rate cuts, but only contingent on signs of a sustainable moderation in CPI inflation and the current account deficit," Nomura said in a note.
The government is also scheduled to resume its debt sales after a week's gap. It will sell 150 billion rupees of bonds this week, as per the indicative borrowing calendar.
While recent macroeconomic data has been bond-supportive, concerns have risen over the government's ability to carry ahead with further reforms.
An Indian Parliament deadlocked yet again over corruption scandals is threatening Finance Minister P. Chidambaram's ambitious reform agenda, dealing a harsh dose of political reality on the heels of his North American roadshow to sell the India story.
The benchmark 10-year bond yield rose 2 basis points to close at 7.76 percent. It traded in a 7.72-7.77 percent band in session.
Total volumes on the central bank's dealing platform stood at an above average 421.75 billion rupees.
"Volatility is the order of the day as expectations are varying. The policy should play out well for the markets as the indicators that the RBI tracks are quite benign," said Lakshmi Iyer, head of fixed income and products at Kotak Mutual Fund.
She expects a 25 basis point cut in the repo rate and does not rule out a cut in banks' held-to maturity holding.
A cut in the holding may free up more bonds for trading, which may increase supply.
The near-end swap fell to a near 28-month low of 7.18 percent in the session, before rising to close at 7.21 percent, unchanged on the day.
The five-year swap rate ended at 6.93 percent, down 2 bps from its last close. It had fallen to 6.92 during the session, its lowest since July 25.
(Editing by Jijo Jacob)
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