Government bond prices ended off highs as traders booked profits following a sharp rise this week. The lack of follow-up buying, after firm demand at the weekly gilt auction, also pulled down gilt prices, dealers said.
Despite coming off the day's highs, gilt prices ended in the green for the fifth day in a row.
At the day's high, the 10-year benchmark 7.26%, 2032 bond had gained 1.63 rupees this week. Today, the 7.26%, 2032 bond closed at 99.66 rupees, or 7.3069% yield, against 99.39 rupees, or 7.35% yield, on Thursday.
The cutoff price on the 7.38%, 2027 bond was below market expectations, which led some traders to trimming their holdings, dealers said. The Reserve Bank of India set a cutoff price of 100.86 rupees against the 100.93 rupees estimated in an Informist poll.
"The 5-year cutoff made some traders nervous, that is why they started selling even the 10-year. But will correct itself soon," a dealer at a private bank said.
The cutoff on the 7.26%, 2032 bond came better than expected. The central bank set 100.02 rupees as the cutoff against expectations of 99.95 rupees in an Informist poll.
Towards the second-half of trading, the 10-year benchmark bond erased some gains.
"Seemingly, there was lack of demand in the last few hours that brought the 10-year bond price down. Today, there wasn't even US treasury yields to track," a dealer at a state-owned bank said.
Bond prices rose sharply higher in early trade following a slump in US Treasury yields post the release of the US CPI data for October, dealers said.
Retail inflation in the US fell to a nine-month low of 7.7% in October, according to data released by the US Department of Labor on Thursday. The US CPI inflation print was seen at 8%, according to a Reuters poll.
With price pressures in the US easing, investors expect the Federal Reserve to slow down on policy tightening. The Fed is seen raising rates by 50 basis points at its meeting in December.
This, dealers said, is also likely to reduce pressure on the Reserve Bank of India to hike rates aggressively at its Monetary Policy Committee meeting in December.
Traders are now waiting for the domestic CPI data, scheduled to be released Monday. India's retail inflation rate likely eased to 6.7% in October from 7.41% in September on account of the statistical effect of a favourable base, according to an Informist poll.
Volume rose today with multiple factors at play, including US CPI, gilt auction and bets before the India CPI data on Monday, dealers said.
According to data on RBI's Negotiated Dealing System - Order Matching platform, the market-wide turnover was at 500.10 bln rupees, compared with 384.25 bln rupees on Thursday.
Meanwhile, 3.00 bln rupees of trade was settled with the pilot digital rupee in 30 deals today, against 5.40 bln rupees in 59 deals on Thursday.
With inputs from Agencies
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