Government bond yields edged higher on the first day of 2014 as investors booked profits after the recent rally in debt prices, but upcoming inflation data due around mid-January will be the next key trigger for the market.
Yields on the benchmark 10-year paper fell 14 basis points over the last two sessions in 2013, but rose 81 bps on the year, in its biggest annual rise since 2009.
“Long bonds may see some pain until the wholesale price inflation readings. There is also some uncertainty over how the fiscal deficit numbers are going to be met,” said Harish Agarwal, a fixed income dealer with First Rand Bank.
The benchmark 10-year bond yield closed up 2 basis points at 8.85%.
In the overnight indexed swap market, the benchmark 5-year swap rate closed up 1 bp at 8.42%, while the 1-year rate ended 1 bps lower at 8.44%.