August 21, 2012 / 12:31 PM / 5 years ago

India bond yields edge higher on CPI, demand for risk

* 10-yr bond yield rises 1 bp to 8.25 percent
    * 1-yr OIS rises 3 bps, 5-yr OIS rises 5 bps
    * Bond markets seen range-bound in near-term

    By Shamik Paul
    MUMBAI, Aug 17 (Reuters) - Indian bond yields rose
marginally on Tuesday as investors favoured risk assets, while
consumer inflation data showing rising food prices reinforced
expectations the central bank will hold off on cutting interest
rates. 
    Bond yields have remained largely range-bound in August
since hitting a one-month high of 8.28 percent on July 31, the
day the Reserve Bank of India kept interest rates on hold and
remained hawkish on inflation.
    Analysts say markets are unlikely to move much until
quarterly economic growth data later this month, or unless the
government announces major fiscal reforms.
    Clear signs of a slowdown could lead to increased pressure
on the central bank to ease monetary policy, traders said, even
as Governor Duvvuri Subbarao has stuck to his warnings about
inflationary pressures. 
    "Yields would soften if the growth is muted in anticipation
of rate easing by the RBI. There could be significant softening
leading up to the data as well," Sandeep Bagla, senior
vice-president with ICICI Securities Primary Dealership, said.
    He expects the benchmark yield to trade in a range between
8.15 and 8.30 percent.
    The benchmark 10-year bond yield closed at
8.25 percent, compared with Friday's close of 8.24 percent.
    The market was closed on Monday for a public holiday.
    Bond prices came under pressure as risk assets gained, with
the BSE benchmark index ending up 1.1 percent at its
highest close since mid-March, led by gains in Infosys 
and consumer good stocks. 
    The rupee also strengthened against the dollar,
tracking a higher euro on hopes for European Central Bank
action to contain borrowing costs in Italy and Spain. 
    Bond prices were also pressured after food prices
accelerated to 11.53 percent in July from 10.71 percent in June,
although overall consumer price inflation slowed slightly to
9.86 percent. 
    The country's one-year overnight index swap rate
 rose 3 basis points to 7.82, while the five-year
rate ended up 5 basis points at 7.19 percent. 

 (Editing by Rafael Nam)

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