(Updates with closing levels for OIS)
* 10-year yield ends 1 bp lower at 7.74 pct
* India buys 96.58 bln rupees in debt vs 100 bln it offered
* Hopes of more OMOs rise as repo bids cross 1 trln rupees
By Archana Narayanan
MUMBAI, May 7 (Reuters) - Indian government bond yields
eased on Tuesday on expectations the central bank would continue
to buy debt via open market operations after lenders borrowed
more than 1 trillion rupees from it, signalling tight liquidity
The Reserve Bank of India bought back 96.58 billion rupees
of bonds on Tuesday, marginally lower than the 100 billion
rupees it offered, marking the first open market operation (OMO)
debt purchase in the fiscal year that started in April.
Expectations the RBI would conduct more OMOs to inject
liquidity helped remove some of the disappointment last week,
when the central bank cut interest rates for the third time in
2013, but signalled little room for easing monetary policy
The optimism comes even after RBI Governor Duvvuri Subbarao
said on Monday the central bank would consider all the options
available to tackle the tight liquidity in the market and not
just confine itself to bond purchases.
"The market expects today's OMO to be the first of many to
come as supply in the near term is very large and OMOs are
crucial for near-term stability of the market," said Ramana
Chegu, head of asset liability management at ING Vysya Bank Ltd,
The benchmark 10-year yield edged 1 basis
point (bp) lower to 7.74 percent.
India will 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.
The heavy schedule of auctions come as repo borrowings
surged to 1.01 trillion rupees ($18.63 billion) on Tuesday as
the banking system continued to face a large cash squeeze
because of lower government spending.
Still, the market is likely to be range-bound from 7.67
percent to 7.77 percent in the near term as it awaits
macro-economic triggers such as the consumer price index and
industrial production data due on Friday, said Chegu.
Those reports will be followed by wholesale inflation data
India's one-year overnight interest swap (OIS)
ended 1 bp higher at 7.25 percent and the
five-year swap rate was also 1 bp up at 6.95
($1 = 54.2250 Indian rupees)
(Editing by Prateek Chatterjee)