India bonds rise to near 1-week high as replacement demand kicks in

Last Updated: Wed, May 08, 2013 12:00 hrs

* 10-year yield ends 5 bps lower at 7.69 pct

* Expectations of more OMOs rise ahead of bond auction on Friday

* CPI, IIP data due Fri, WPI due Monday key

By Archana Narayanan

MUMBAI, May 8 (Reuters) - Indian government bond prices rose on Wednesday to their highest in about a week as investors hoped the central bank would continue to buy debt and provide some liquidity relief.

The Reserve Bank of India bought almost 100 billion Indian rupees ($1.85 billion) of bonds via open market operations (OMOs) on Tuesday, leading investors to replace the debt amid hopes of continued purchases.

These expectations come as India is set to auction 150 billion rupees of bonds on Friday, as part of plans to borrow a total of 3.49 trillion rupees between April and September.

"We were expecting two OMOs totalling 200 billion rupees in May coinciding with two of the auctions to ease liquidity pressure and support debt supply," said Anoop Verma, a vice-president with Development Credit Bank.

The 10-year bond yield closed down 5 basis points (bps) at 7.69 percent, a level last seen on May 2. It moved in the 7.69 to 7.74 percent range during the day.

The yield is not far off a 33-month low of 7.68 percent hit on May 2, the day before the RBI cut interest rates by 25 bps, but disappointed investors by signalling little room for further monetary policy easing.

Although expectations for more OMOs and lower commodity prices have helped support bonds, traders will also eye economic data. India is set to report the consumer price index and industrial production data on Friday, followed by the wholesale inflation numbers on Monday, dealers said.

The data comes as India cut short the budget session of parliament on Wednesday, two days ahead of its scheduled close and without passing major reforms like the food security and the land acquisition bills.

The food security bill, which aims to give millions more cheap food, is seen as crucial to the ruling Congress party's hopes of winning the 2014 elections.

The swaps curve also steepened on expectations of improving liquidity in the near term after the OMO.

The one-year overnight interest swap (OIS) rate closed steady at 7.25 percent, while the five-year swap rate ended up 1 basis point at 6.96 percent. (Editing by Prateek Chatterjee)

More from Sify: