Indian bonds hit 16-1/2 month high; end steady on profit-taking

By Swati Bhat

MUMBAI (Reuters) - Indian bonds hit a fresh 16-1/2 month high on Wednesday before closing unchanged as investors took profits after the sharp rally seen in recent sessions and as the rebound in global crude oil prices hurt, even as overall sentiment remained positive.

Investors remain bullish on bonds on expectations the Reserve Bank of India will cut interest rates in early 2015 after issuing a dovish statement following its policy review on Tuesday.

The positive sentiment is likely to lead to strong demand for bonds at a 140-billion-rupee auction of government debt on Friday and further on the inflation data due mid-month.

"The auction cut-offs on Friday and the November inflation data will be the next triggers to watch out for. Market also waiting to see if any more open market sales are announced," said Bekxy Kuriakose, head of fixed income trading at Principal PNB Asset Management.

Kuriakose said she expects the 10-year paper to hold in a 7.90 percent to 8 percent range in the near term.

The benchmark 10-year bond yield ended steady at 7.97 percent. The yield dropped to 7.94 percent in intra-day trade, its lowest level since July 19, 2013.

Yields had dropped 18 basis points over the last three trading sessions, prompting some profit-taking, dealers said.

Falls also came after Brent rose towards $71 a barrel, recovering some of its losses from the previous session.

In the overnight indexed swap market, the benchmark 5-year rate ended up 10 bps at 7.20 percent, while the 1-year rate closed 9 bps higher at 7.84 percent.

(Reporting by Swati Bhat; Editing by Prateek Chatterjee)