Meanwhile, rupee weakened on speculation some refiners bought dollars to settle month-end import bills as conflict in the Gaza Strip escalates.The rupee slipped 0.1% to 48.485 against the dollar at the close. It may drop to 48.80 next week.
Benchmark yields declined the most in more than a week after PTI reported that the government may lower fuel prices, citing oil minister Murli Deora.
The present macroeconomic and market conditions call for an easier monetary policy, said Paresh Nayar, chief of currency and fixed-income trading at Development Credit Bank Ltd. in Mumbai. Investors are pricing that in, pushing yields lower, he said. The yield on the 8.24% note due April 2018 slid 28 bps to 5.27% at the close.
The 10-year yield may decline to 5% in the coming weeks, Nayar said. The government sees scope for further easing of monetary policy over the next six to 12 months as economic growth slows, it said.