January 22, 2013 / 12:06 PM / 5 years ago

Indian bond yields stuck in a range ahead of policy

* 10-year bond yield ends down 1 bp at 7.85 pct
    * Market choppy in cautious trade ahead of policy review
    * Finmin says govt to increase FII debt limits by $10 bln

    By Swati Bhat
    MUMBAI, Jan 22 (Reuters) - Indian federal bond yields
seesawed in a tight band on Tuesday as investors cautiously
rebalanced portfolios ahead of the central bank's policy review
next week with comments from the finance minister barely aiding
sentiment.
    Traders are broadly positioned for a 25 basis point cut in
key interest rates next week, which is in line with a poll of 40
economists by Reuters as well. 
    India's economy will grow "no better than" 5.7 percent in
the current fiscal year but will regain traction in 2013/2014,
the finance minister said on Tuesday, as he sought to reassure
international investors that the government remained committed
to pro-growth policies and reforms. 
    Chidambaram also said India will raise the cap on foreign
institutional investment in government and corporate bonds by $5
billion each, according to a report by Citi. 
    "We are too close to the policy for the market to get
excited about the increase in FII limits. We will see when the
limits get auctioned," said Sandeep Bagla, executive vice
president at ICICI Securities Primary Dealership.
    "Market has been choppy as people not willing to carry too
many positions into the policy, so some sort of a rebalancing
taking place. People are comfortable with the 10-year at 7.85
but unsure whether it should go to 7.80 or 7.90 from here".
    The benchmark 10-year bond yield closed down
1 basis point (bp) at 7.85 percent after moving in a 7.83
percent to 7.87 percent band.
    Total volumes on the central bank's electronic trading
platform were at a moderate 337.30 billion rupees.
    Traders expect swap rates to continue to see some receiving
heading into the policy with the finance minister's comments
being a mild positive.
    The benchmark 5-year swap rate fell 1 bp to
7.12 percent while the 1-year rate also ended
down 1 bp at 7.53 percent. 
    The spread between the five-year and the one-year rate,
which had dropped to 34 bps on Jan. 11, has risen again to 41
bps after hopes of a 50 bps cut in rates were dashed by the
central bank chief's comment last week that inflation was still
high.

 (Editing by Jijo Jacob)

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