(Reuters) - Indian government bond yields edged lower on Monday as the sustained fall in global crude oil prices raised expectations of domestic inflation remaining on a downtrend and the central bank slowing its pace of interest rate hikes going ahead.
The benchmark 10-year government bond yield ended at 7.2736%, after closing at 7.3012% on Friday.
"The sharp fall in oil prices was the major trigger for today's move in the absence of major domestic triggers," said Debendra Kumar Dash, senior vice president, treasury, AU Small Finance Bank.
Oil prices fell over 3% on Monday as protests in China over strict COVID-19 curbs fuelled concerns over demand. Including this, crude prices have tumbled more than 8% in a four-session losing streak.
India imports more than two-thirds of its oil requirements and a fall in global crude should help lower imported inflation and reduce the pressure on the Reserve Bank of India to raise rates.
The RBI's monetary policy committee is due to meet in early December when it is widely expected to raise the key repo rate by 35 basis points, after having raised rates by a total of 190 bps in four moves since May.
The buying from some long-term investors and mutual funds also helped bonds, according to dealers.
Fund houses have stepped up their bond buying as they had surplus cash, which they were not deploying amid uncertainty, said a debt fund manager at a Mumbai-based fund house.
"There's an overall bullish sentiment and we find it a good investment opportunity to invest at these levels," they added.
However, Dash said, the benchmark bond yield is unlikely to fall below 7.25% as investors will exercise caution ahead of the RBI policy decision on Dec. 7.
The 10-year bond yield is expected to trade between 7.22% to 7.32% until the policy decision, Sanjay Pawar, fixed income fund manager at LIC Mutual Fund said.
Domestic growth numbers and the U.S. non-farm payrolls data will be keenly watched this week. The Indian economy likely returned to a more normal 6.2% annual growth rate in July-September after double-digit expansion in the previous quarter, but weaker exports and investment will curb future activity, according to a Reuters poll.