INDIA BONDS-India bonds rebound as RBI lowers auction supply

(Updates at market close)

By Dharamraj Dhutia

MUMBAI, Oct 31 (Reuters) - Indian government bonds rose by close of trade on Friday as the central bank sold lesser debt than scheduled at a weekly auction, providing some relief in a bearish market.

Bonds have sold off in recent days amid doubts over local rate cuts as well as the central bank's stance on banking system liquidity.

"The move on bonds is like a repeat of July and August, which was followed by a rally in September. This time, December would be a make or break month," Pawan Somani, founder of Infinask Advisors, said.

New Delhi raised 210 billion rupees ($2.39 billion) through an auction against the target of 320 billion rupees as the Reserve Bank of India did not accept any bids for the 6.28% 2032 bond.

The yield on the benchmark 10-year note ended at 6.5317% against 6.5730% on Thursday. Earlier in the day, it hit 6.5964%, the highest since October 1.

A day earlier, the 10-year yield broke the crucial level of 6.55%, after U.S. Federal Reserve Chair Jerome Powell signalled that a December rate cut was not a done deal.

"The move was surprising but was much-needed, as the benchmark bond yield would have tested 6.60% and even higher in next couple of sessions," said a senior treasury official, who did not want to be named as he is not authorised to speak to media.

For the month, the yield eased 5 bps after rising bps in September. Bond yields rise when prices fall.

Shrinking banking system liquidity in the market has kept bond trading volumes thin.

RATES

India's overnight index swap rates ended marginally lower in line with bond yields.

The one-year OIS rate ended at 5.4750% and the two-year rate closed at 5.4250%.

The five-year swap rate settled at 5.67%. ($1 = 88.6950 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Sumana Nandy and Mrigank Dhaniwala)