* Bond yields edge lower on global risk aversion
* Lack of new 10-yr debt disappoints markets
* RBI announces 3rd weekly OMO for Friday
(Updates to reflect RBI's OMO announcement)
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.
Bond prices could benefit on Wednesday after the Reserve
Bank of India said after the markets close it would buy up to
120 billion rupees in debt at the end of the week, its third
consecutive open market operation.
That could offset disappointment after the RBI said on
Monday it would sell more of the existing 2021 benchmark bonds,
despite a ballooning outstanding issuance, instead of issuing a
new 10-year paper.
Traders saw that as a tactical move intended to increase the
supply of this maturity to facilitate bond purchases.
"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.
These expectations have increased hopes for OMOs as the RBI
would need to offset the impact on rupee liquidity from its
dollar sales in forex markets.
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)