* 10-year bond yield ends up 3 basis points at 7.96 pct
* Political instability, doubts about future rate cuts weigh
* OMO cut-offs in line, quantum bought back sharply lower
(Adds quote, details)
By Subhadip Sircar and Archana Narayanan
MUMBAI, March 22 Indian bonds fell on Friday and
were close to wiping out gains for the year as stop-losses got
triggered on continued concerns about political instability and
doubts about future interest rate cuts.
The benchmark 10-year bond yield has risen
11 basis points this week, the biggest increase since the week
ended March 1 when the 2013/14 budget had broadly disappointed
"The current selling is a mixture of instability in further
fiscal reforms followed by the year-end portfolio realignment
that would create space in accommodating the fresh issuance
calendar," said Shakti Satapathy, a fixed income analyst at AK
The results of the open market operations by the central
bank came largely in line with expectations. The Reserve Bank of
India bought 60.28 billion rupees ($1.11 billion) of government
bonds through open market operations (OMOs) on Friday, as
against the notified 100 billion rupees.
Still, analysts expect bonds to see some support starting in
April when funds typically increase allocations at the start of
a new financial year, although the broader fundamental economic
and fiscal outlook remains cautious.
"We are seeing position cutting from mutual funds which are
seeing redemption pressures. However, the selling may last one
more day and yields are likely to be capped at 8 percent," said
Baljinder Singh, a bond dealer at Andhra Bank.
"We may see a small rally in April as new allocation in the
next fiscal will begin."
The benchmark 10-year bond yield ended 3
basis points higher at 7.96 percent, the highest level since
Bonds are at a risk of wiping out gains for the year, with
yields not far off the 8.00 percent level at the end of 2012.
Investors were widely disappointed after the central bank
stuck to a cautious tone on monetary policy, despite cutting
interest rates by 25 bps for a second time this year.
On top of that, a key regional ally withdrew from the ruling
coalition, threatening the government's fiscal reform agenda.
The twin developments were a blow to the bond markets, given
hopes for additional fiscal measures and a dovish central bank
had been key reasons behind the earlier rally this year.
Despite the expected allocations from funds in April, the
fundamental outlook remains cautious.
The Reserve Bank of India won't review policy until May,
while the government is gearing up to borrow 3.49 trillion
rupees ($64.28 billion) during April-September after staying out
of markets this month.
The benchmark five-year swap rate closed up
1 bp at 7.25 percent, while the one-year rate
ended 1 bp lower at 7.53 percent.
(1 = 54.2950 Indian rupees)
(Writing by Rafael Nam; Editing by Subhranshu Sahu)