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Indian bond yields tread water; deficit worries hurt
March 20, 2012 / 1:07 PM / 6 years ago

Indian bond yields tread water; deficit worries hurt

* Gokarn comments boost April rate cut expectations
    * Traders see 10-yr yld in 8.50-8.65 range in April, if no
rate cut
    * Nomura expects 1-year OIS to ease, long-end to rise in

 (Updates to close)	
    By Archana Narayanan	
    MUMBAI, March 20 (Reuters) - Indian federal bond yields were
almost steady after easing earlier in the day, as worries about
possible heavy government supply punctured enthusiasm over a
central banker's comments on inflation which fuelled interest
rate cut hopes in April.	
    Reserve Bank of India Deputy Governor Subir Gokarn, who
handles monetary policy, said slowing growth and a fall in
commodity prices may help rein in inflation, boosting hopes of a
rate cut in its April 17 policy review. 	
    The 10-year benchmark bond yield ended at
8.41 percent, 1 basis point lower than Monday's close of 8.42
percent, after moving in a narrow 8.38-8.43 percent range in the
    "The RBI reassured that further rate actions will be towards
lowering the rates, but the possible heavy government supply is
balancing out any positive news flow," a senior trader with a
foreign bank said.	
    Yields eased in early trades as some buying emerged from
state-run banks to prop up their balance sheets before the
2011/12 fiscal year ends on March 31.	
    The 10-year bond yields are expected to remain rangebound
until the 2012/13 borrowing details are known by end-March.
    The federal government has announced a gross borrowing plan
of 5.7 trillion rupees ($113.47 billion) for 2012/13 in its
annual budget last week. 	
    Vivek Rajpal, India rate strategist at Nomura, expects easy
liquidity conditions in April a long with heavy bond supply
resulting in the steepening of the overnight indexed swaps (OIS)
and bond curve.	
    "This steepening of the curve should also be helped by the
potential repo rate cut in 17 April policy, which in our view
remains a high probability despite the RBI's cautious stance,"
Rajpal said.	
    The one-year swap rates may ease in April due to improved
liquidity, while the long-end OIS may go up in response to
supply pressure on government bonds, Nomura said in a research
    The benchmark bond yield could to be around 8.50-8.65
percent in April because of higher borrowing, traders said,
adding, if the RBI rate cut materialises next month, it may ease
to 8.10-8.35 percent band.	
    Traders expect the RBI to hold off from conducting further
open market operations (OMOs) from April, as liquidity is likely
to improve. However, the absence of OMOs is likely to put upward
pressure on bond yields.	
    The total traded volume on the central bank's electronic
trading platform was 55.40 billion rupees, nearly half of the
average daily volume.	
    The benchmark five-year swap rate ended at
7.60 percent from 7.61 percent and the one-year rate
 at 8.19 percent from Monday's close of 8.21
($1 = 50.2350 Indian rupees)	
 (Editing by Malini Menon)

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