Indian bond yields ease on new short-term borrowing limits

MUMBAI, April 25 (Reuters): Indian federal bond yields edged lower Monday aided by hopes of lesser short-term borrowing by the government and a lack of supply this week, with a drop in US yields also supporting sentiment. India's central bank last Saturday announced new short-term borrowing limits for the federal government, saying the maximum it can borrow under the ways and means advances (WMA) is 300 billion rupees for April 1 to April 20 and 450 billion rupees for the April 21 to June 30 period. "The fresh limits under WMA and the absence of a bond sale this week are both positive bonds," said Anoop Verma, an associate vice president with Development Credit Bank. The government usually borrows from the Reserve Bank of India under the WMA when it does not have enough funds. The new limits are seen as positive for the bond market as it would mean lesser issuance of cash management bills, dealers said. "The fresh WMA borrowing limits mean there is unlikely to be any fresh issuance of cash management bills. The government has, anyway, exhausted its limits for additional market borrowing this year, last week itself," a dealer with a foreign bank said. The government had last week sold 200 billion rupees ($4.5 billion) worth of cash management bills. At 11:30am (0600 GMT), yields on the most-traded 10-year 7.80 per cent 2021 bond and the second most-traded 8.08 per cent 2022 bond were both down 2 basis points at 8.04 per cent and 8.22 per cent, respectively. The market was closed last Friday for Good Friday. Total volumes were a moderate 19.50 billion rupees on the central bank's electronic trading platform. The benchmark 5-year swap rate was down 2 basis points at 8.24 per cent while the one-year swap rate was 1 basis point lower at 7.79 per cent. "Some position adjustments ahead of the policy are being seen today. Swap market was paid, so (seeing) squaring off of the positions. Also, the absence of a bond sale this week is keeping sentiment bullish," said a senior dealer with a foreign bank. Market is largely expecting a 25 basis points increase in key rates at the central bank's annual monetary policy on May 3. US Treasuries were supported in Asia Monday as market players look to the US Federal Reserve for signs it will not rush to shrink its huge balance sheet at a policy-setting meeting this week, though buying was kept to a minimum before a series of auctions. The yield on the 10-year US Treasuries stood at 3.40 per cent , little changed from late last Thursday trade before the Easter holiday.