The benchmark bond yield, however, posted its biggest monthly rise in five months in February amid uncertainty over interest rates and tightening liquidity conditions.
The 10-year benchmark 7.26% 2032 bond yield ended at 7.4623%, its highest since Nov. 4. It closed at 7.4533% on Monday.
The yield rose 12 basis points in February, the biggest such move since September and after rising 2 bps in January. The economy likely grew 4.6% year-on-year, according to a Reuters poll of economists, on weak global demand and monetary tightening by the Reserve Bank of India (RBI), government data is expected to show after the close.
MONTHLY RISE Meanwhile, bond yields rose in February as the RBI raised the repo rate for the sixth consecutive time, taking it to 6.50%, and kept the door open for more tightening. Yields also remained under upward pressure as liquidity in the banking system was in deficit for the most part of the month, while inflation pressures persisted.
A stronger-than-expected inflation reading for January has led to broader expectations of another RBI rate hike in April. Going ahead, growth worries may come under focus instead of inflation concerns and that could support the longer end of the curve, said Pankaj Pathak, fixed income fund manager at Quantum Asset Management.
"The benchmark yield may be anchored around 7.50%, and I do not see any substantial evidence that suggests it may go higher."
The yield curve between the two-year and 10-year Indian government bonds is likely to invert on the back of worsening liquidity deficit and bets of continued rate hikes, analysts said on Tuesday. The short-end rates are expected to rise further, they added. (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)
