Bonds snap 8 weeks of losses; await rupee support steps

By Subhadip Sircar

MUMBAI (Reuters) - The government bonds posted their first weekly gains in nine, helped by growing hopes that policymakers would soon announce more steps to help the rupee which hit a record low earlier in the week.

The focus remains firmly on measures that the government may unveil, with bonds and the rupee gaining after a senior finance ministry official hinted at further steps.

"Wait till the end of the week," Economic Affairs Secretary Arvind Mayaram told reporters in Mumbai when asked about further likely steps to prop up the rupee. "Finance minister will talk about this later," he added.

The rupee hit a record low of 61.80 on Tuesday, even after the central bank took cash tightening steps in July.

Indian media has been speculating that the government may announce steps like allowing local companies to borrow more overseas and to use overseas funds to repay rupee loans.

The gains also came in a week when Raghuram Rajan, the current chief economic adviser to the finance ministry, was appointed central bank governor to succeed Duvvuri Subbarao.

"For the moment, the market is expecting steps from the government. Bond markets have digested much of the monetary measures. Eventually, slowing growth and inflation will take over monetary concerns and that will help bonds," said R. Sivakumar, head of fixed income at Axis Mutual Fund.

Bonds ended Friday's session with gains. India sold 150 billion rupees of debt on Friday with bullish cutoffs.

The benchmark 10-year bond yield ended 2 basis points lower at 8.12 percent, after rising to as much as 8.20 percent. Total volumes were less than normal at 170.65 billion rupees.

For the week, the yield was 16 basis points lower.

The benchmark 5-year overnight indexed swap rate closed down 11 bps at 8.29 percent. The 1-year rate ended 10 bps lower at 9.17 percent.

(Editing by Anupama Dwivedi)