March 20, 2012 / 6:22 AM / 5 years ago

Indian bond yields, swaps ease on RBI deputy comments

* Expect 10-yr yield around 8.50-8.65 pct in April -
IndusInd Bank
    * Yields artificially low as banks buying to improve
valuation - trader
    * Expect one-year OIS to ease, long-end to rise in April -
Nomura

 (Updates to mid-morning)	
    MUMBAI, March 20 (Reuters) - Indian bond yields and swaps
eased on Tuesday, following comments on inflation from a Reserve
Bank of India deputy, fuelling expectation of a rate cut in
April.	
    RBI Deputy Governor Subir Gokarn, who handles monetary
policy, said it was not global oil prices alone that would
determine inflation, and stabilising food prices were also
likely to moderate local inflation. 	
    At 11:24 a.m. (0554 GMT), the 10-year benchmark bond yield
 was 3 basis points down on the day at 8.39
percent.	
    The benchmark five-year swap rate was down 2
basis points at 7.60 percent and the one-year rate
 1 basis point at 8.20 percent.  	
    Yields had eased 2 basis points in early trades, as some
buying emerged from state-owned banks to prop up their balance
sheets before the fiscal year ends on March 31, with traders
also buying to cover their short positions. 	
    But traders do not expect a sharp fall in yields until the
2012/13 borrowing details are known by March-end.
 	
    The federal government has announced a gross borrowing plan
of 5.7 trillion rupees ($113.3 billion) for 2012/13 in its
annual budget last week.    	
    "I expect the 10-year yield to be around 8.50-8.65 percent
in April because of higher borrowing," said J. Moses Harding,
head of the asset liability committee at IndusInd Bank.	
    If the RBI would cut rates from April, the 10-year yield may
be in 8.10-8.35 percent band, Harding said.	
    Some traders see the 10-year yield closer to 8.50 percent by
March-end.	
    "I think the yields are artificially low because of banks'
buying for valuation purposes," said a trader with a foreign
bank.	
    Traders expect the RBI to hold off from conducting further
open market bond purchases from April, as liquidity is likely to
improve. However, absence of OMOs is likely to put upward
pressure on bond yields.	
    The total traded volumes on the electronic trading platform
were 30.90 billion rupees, close to the daily average.        	
    The one-year swap rates may ease in April due to improved
liquidity, while the long-end OIS may go up in response to
supply pressure on government bonds, Nomura said in a research
note.    	
    ($1=50.3 rupees)	
	
 (Reporting by Neha Dasgupta; Editing by Rajesh Pandathil)

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