Bonds gain for second day after trade deficit narrows

Bonds gained for the second day, with the benchmark 10-year bond yield down 5 basis points after better-than-expected trade data and comments from central bank governor led to hopes the Reserve Bank of India may not necessarily raise interest rates in the upcoming monetary policy review.

10-year yields had already fallen 18 bps on Tuesday to mark their biggest daily fall since September 19.

Trade deficit narrowed to a two-and-a-half-year low in September, according to provisional data.

Meanwhile, traders say the overall tone of central bank governor Raghuram Rajan from a slew of media interviews appeared to be more neutral about the scope of monetary policy.

"There is some momentum after the governor's comments and the data, which should pull down the 10-year yield to 8.35% by Friday's auction," said a trader with a foreign bank.