Bond yields tread water after scaling 3-months low level in previous session

Bond yields steadied after scaling three months low in the previous session on Wednesday as trader’s preferred to be on the sidelines ahead of the May inflation data, a figure that would provide clues on Reserve Bank of India’s (RBI) stance in its upcoming monetary policy review on June 18, 2012. The expectation is that RBI will lower the benchmark repurchase rate to 7.75% from 8%. Further, the expected global risk-aversion ahead of Greece elections over the weekend is also expected to help bond prices.

On the global front, benchmark US Treasury bonds inched higher in Asia on Wednesday, buttressed by continued concern about the euro zone debt crisis even as investors braced for a 10-year note sale after the Treasury Department’s sale of 3-year notes garnered poor demand from a key group of investors. Some $32 billion of three-year notes, which were sold at a high yield of 0.387%, were priced at 0.4 basis points above where they traded before the auction, which was the largest concession since February 2011.

Meanwhile, Brent crude steadied above $97 on Wednesday ahead of a meeting of the producer group OPEC this week, while gains remained limited as looming uncertainty over Europe's ability to tackle its debt crisis intensified fears of a slowdown in oil demand growth.

Back home, the yields on 10-year benchmark 8.79% - 2021 were trading steady around its previous closing levels of 8.29%.

The benchmark five-year interest rate swaps were trading up 1 basis point at 7.14% from its previous close of 7.13% on Tuesday.

The Reserve Bank of India has announced the auction of 364-day and 91-day Government of India Treasury Bills for notified amount of Rs 5,000 crore and Rs 10,000 crore respectively. The auction will be conducted on June 13, 2012 using 'Multiple Price Auction' method.