* Bond yields edge lower on global risk aversion
* Lack of new 10-yr debt disappoints markets
* More OMOs seen, possibly this week
By Subhadip Sircar
MUMBAI, May 22 Indian federal bond yields fell
slightly on Tuesday after continued global risk aversion offset
disappointment the central bank had refrained from announcing a
new 10-year paper at its auction this week.
Traders had anticipated the Reserve Bank of India would
announce a new 10-year paper late on Monday when it announced
the mix of the debt it will sell at the end of the week as part
of its weekly auctions.
Instead, the RBI will sell more of the existing 2021
benchmark bonds, despite a ballooning outstanding issuance, in
what traders saw as a tactical move intended to increase the
supply of this maturity to facilitate bond purchases.
These buybacks done via open market operations could be key
to Indian debt markets, as the rupee continues to drop
to new record lows, although the central bank has not been
intervening aggressively since Thursday.
"It looks like the RBI will support the market via
continuous OMOs. The benchmark yield may move to 8.45 percent on
the support," said Harish Agarwal, dealer with First Rand Bank
The benchmark 10-year bond yield ended at
8.52 percent, 2 basis points lower than Monday's close.
Global risk aversion has been front and centre in Indian
markets since last week, with the rupee and stocks dropping
further after Fitch downgraded Japan's sovereign ratings citing
a heavy debt burden.
A risk off global sentiment is favorable to local bonds,
though the market is largely domestic investor driven.
Although the central bank has chosen not to intervene in FX
markets in recent days, traders say more action is likely.
Any dollar sales would increase hopes of OMOs. The RBI has
already purchased bonds in each of the previous two weeks in
order to offset the impact on rupee liquidity from its dollar
sales in forex markets.
RBI Deputy Governor Subir Gokarn said on Monday the central
bank could do OMOs this week, though no official announcement
Cash conditions also remain tight, with repo borrowings on
Tuesday nearly hitting 1 trillion rupees, well above the RBI's
One-year OIS rate closed steady at 7.99
percent while the five-year rate rose 2 bps to
(Editing by Rafael Nam)