(Fixes grammar in headline)
* 10-yr yield edged up in tight range
* Traders hopeful of new 10-yr bond announcement
* More bond purchases via OMOs also seen possible
By Subhadip Sircar
MUMBAI, May 21 (Reuters) - Indian federal bond yields edged up on Monday as traders waited to see whether the central bank will announce the sale of a new 10-year paper and hold additional bond purchases this week.
The existing benchmark paper, the 8.79 percent 2021 bond, has 770 billion rupees ($14.13 billion) in outstanding paper, above the normal issuance of 600-700 billion rupees.
Traders said a new 10-year could elicit a spurt of buying in the new paper, while open market operations could help sentiment after the Reserve Bank of India has already conducted these bond purchases in each of the previous two weeks.
The RBI is set to announce the composition of its bond auction for Friday later in the day, and might make then an announcement on any OMO.
"The future course of yields will depend upon the securities RBI announces today as markets await the new benchmark, and continuance of further OMOs by RBI will guide the market actions," said Anuj Tagra, a dealer with Union Bank of India.
The benchmark 10-year bond yield ended at 8.54 percent, 1 basis points higher than Friday's close, with volumes quite thin.
The hopes for OMOs come as the RBI has stepped up its forex interventions as the rupee has hit a string of record lows against the dollar, with the rupee breaching below the key psychological level of 55 per dollar on Monday.
Though the central bank was seen as largely absent on Friday and Monday, traders expect more interventions, which could spur more bond purchases to ease the impact on rupee liquidity at a time when the banking system is still showing a cash deficit.
Repo borrowings rose above 1 trillion rupees on Monday, snapping four consecutive sessions of borrowings below that figure.
Supply worries are also weighing on the market. The government will sell 140 billion rupees of treasury bills and 150 billion rupees of bonds in the week.
Still, some analysts are turning more optimistic.
Credit Agricole CIB said Indian bonds, especially longer-dated ones, offer value as it expects some fiscal consolidation, while adding yields were high and offered an attractive entry point, according to a note.
That comes after Nomura said last week it was time to initiate an outright long bond positions.
One-year OIS rate and the five-year rate both rose 2 bps each to 7.99 percent and 7.44 percent respectively. ($1 = 54.4750 Indian rupees) (Editing by Rafael Nam)