* 10-yr bond yield ends up 1 bps on Fri and for wk
* Slump in global crude prices to support bond prices
* More OMOs seen as faltering rupee sparks RBI intervention
By Subhadip Sircar
MUMBAI, June 22 India's benchmark federal bond
yield ended marginally higher on Friday because of
profit-taking, but hopes of a sustained fall in global crude oil
prices and more central bank bond purchases are likely to keep
debt prices supported.
The slump in oil prices is helping ease some of the concerns
about inflationary pressures that were cited by the Reserve Bank
of India as the main reason for keeping interest rates on hold
on Monday, a decision that stunned markets.
Though yields initially surged after the decision, benchmark
10-year yields have closed up only up 1 basis point for the
week, helped as well by expectations the RBI will step up bond
purchases via open market operations.
The spike in global risk aversion has sent the rupee
to a record low against the dollar for a second
consecutive session on Friday.
That has forced the RBI to intervene in foreign exchange
markets, and is thus raising expectations of more OMOs to offset
the impact on rupee liquidity.
"Signals of weak global demand is pushing down crude, and in
turn reining in inflation expectations in India, supporting
bonds," said Harish Agarwal, a dealer with First Rand Bank in
"Hopes of continuation of OMOs is also helping sentiment."
India's 10-year benchmark bond yield rose 1
bp to 8.35 percent on Friday. Total volumes on the central
bank's electronic trading platform were at a high 221.20 billion
The yield on the new 8.15 percent 2022 paper ended at 8.08
percent, up 3 basis points.
Though the gains for the week were mild, the RBI decision
snapped seven consecutive weeks of falling yields, and have put
into doubt potential near-term rate cuts, especially after
Governor Duvvuri Subbarao followed up with hawkish comments on
The 1-year overnight indexed swap surged 18
basis points for the week, after falling 3 basis points to 7.75
percent on Friday.
The longer-end 5-year rate dropped 5 bps to
7.19 percent, ending up 3 bps for the week.
Analysts don't expect a rally in bond prices, but at least
they expect yields to be capped should the RBI continue to buy
bonds via OMOs or in secondary markets.
The RBI bought 112.88 billion rupees in government bonds via
open market operations on Friday, lower than the notified 120
A Reuters poll this week showed traders expect 1 trillion
rupees in additional OMOs for the rest of the fiscal year ending
in March 2013, both to counter FX interventions and to inject
enough liquidity to allow the government to sell a record 5.3
trillion rupees in bonds.
The government sold 150 billion rupees of debt in session,
including 70 billion rupees of the most traded 9.15 percent 2024
bond at bullish cutoffs.
(Editing by Rafael Nam)