October 7, 2013 / 12:07 PM / 4 years ago

Indian bond yields rise after cbank OMO disappoints

* 10-year bond yield up 7 bps at 8.68 pct

* RBI disappoints, buys mostly short-dated debt in OMO

* Market seen range-bound as OMO announcement eyed

By Neha Dasgupta

MUMBAI, Oct 7 (Reuters) - Indian government bonds slumped on Monday, snapping a recent winning streak, after the central bank bought less longer-dated bonds than expected at an open market operation.

The Reserve Bank of India bought 99.74 billion rupees ($1.6 billion) of bonds compared to its offer to buy up to 100 billion rupees on offer. That was much above the Reuters poll projection of 60 billion rupees.

However, traders say the RBI had opted to buy more of the 2015 bond tranche than expected, instead of the longer-dated illiquid bonds banks and fund companies had been hoping to sell.

Trading could turn more range-bound for bonds for the remainder of the week, with the focus on whether the central bank will make any new OMO announcements.

"Market at best will be range-bound from here and need to wait and watch (for OMO announcement)," said Sandeep Bagla, executive vice president at ICICI Securities Primary Dealership. He expects the near-term range for the 10-year benchmark yield at 8.60-8.70 percent.

The benchmark 10-year bond yield rose 7 basis points to 8.68 percent after trading in a tight band for most of the session. Yields had fallen 10 bps last week, marking their first weekly gain in four.

Traders say the RBI may opt not to pursue an OMO this week as banking liquidity is set to improve as 450 billion rupees worth of cash management bills mature over the next two weeks.

Total volumes on the central bank's electronic trading platform were sharply lower at 180.20 billion rupees compared with 373 billion rupees on Friday.

In the overnight indexed swap market, the benchmark five-year rate closed 2 bps higher at 8.26 percent, while the one-year rate ended unchanged at 8.64 percent. ($1 = 61.8 rupees) (Editing by Sunil Nair)

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