February 3, 2014 / 12:06 PM / 4 years ago

Indian bonds gain for second day; sentiment positive in short term

* 10-year bond yield ends down 4 bps at 8.73 pct
    * Results of Friday's debt sale continue to cheer
    * Fall in U.S. yields, crude oil prices also aids

    By Swati Bhat
    MUMBAI, Feb 3 (Reuters) - Indian government bonds gained for
a second consecutive session on Monday, continuing their rebound
from a near one-month low hit last week after strong demand for
a weekly debt auction and a sharp fall in U.S. Treasury yields
shored up sentiment.
    India fully sold $2.23 billion bonds at bullish cut-offs on
Friday, with healthy bid-to-cover ratios and improving sentiment
ahead of this week's 100 billion rupees sale. Details of the
auction are due later in the day. 
    Traders said bonds could gain more if emerging markets
stabilise. Despite steep falls in Indian shares, the rupee
 has been sturdier in recent sessions, easing some of
the concerns.
    Still foreign investors have been sellers, unloading a net
$523 million over the past six sessions.
    "From this week (bond) supply is low, EM selloff seems to
have petered out, markets expect better inflation data and
positioning is not heavy. So all put together, in the very short
term the bullishness should continue," said Arvind Chari, head
of fixed income and alternatives at Quantum Advisors.
    The benchmark 10-year bond yield closed down
4 basis points at 8.73 percent after moving in an 8.72 to 8.78
percent range during the day. The yield had risen to as much as
8.85 percent on Jan. 30, its highest since Jan. 3.
    Chari predicted the yield would move in an 8.60 to 8.80
percent range in the near term.
    Bonds were also supported after U.S. Treasuries prices rose
on Friday, with benchmark yields falling to their lowest level
in over two months on a safe-haven bid. 
    Domestic bonds tend to track U.S. Treasuries given the
differential between the two can increase or reduce the appeal
of India's higher yielding debt.
    A drop in Brent crude to a two-week low on Monday on the
back of weak factory data from China also helped support bond
markets. 
    In the overnight indexed swap market, the one-year rate
 closed 1 basis point lower at 8.69 percent,
while the 5-year rate ended steady at 8.42
percent.
($1 = 62.6550 Indian rupees)

 (Editing by Subhranshu Sahu)

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