Reserve Bank of India will sell 2.87 trillion rupees ($64 billion) of bonds in the first half of 2010/11, 63 percent of its recordfull-year target, less than market expectations, sending yields down. On an average, Rs 110-150 billion of issuance would come to the market every week, Shyamala Gopinath, a deputy governor of the Reserve Bank of India (RBI), told reporters after officials of the central bank and the finance ministry met to finalise the first-half borrowing schedule.

The yield on the benchmark 10-year government bond fell 1 basis point to 7.83 percent on the news. Gopinath said the central bank would try to smoothly conduct the government's borrowing programme. The RBI will provide later in the day details on the size and the maturity of the bonds to be auctioned.

Traders are looking for a higher portion of three to five year maturities, which could push up short-term rates and flatten the yield curve.

India's gross borrowing in 2010/11 is set to rise an annual 1.3 percent to 4.57 trillion rupees to fund a fiscal deficit that is projected at 5.5 percent of the gross domestic product.

The RBI has said managing the government's debt programme this year would be a challenge as last fiscal year's net debt supply was significantly lower than the net borrowing on account of a $13.6 billion buy-back of bonds by the central bank.

This year the RBI may not buy back as many bonds as it did last year as it would not like to increase liquidity when inflationary pressures are mounting. The RBI is also constrained by the fact that it has nearly exhausted its stock of Market Stabilisation Scheme bonds which are used to absorb liquidity from the markets.

Headline inflation was near 10 percent in February, prompting the RBI to unexpectedly raise its key lending and borrowing rates by 25 basis points each on March 19. The central bank has said it is imperative to anchor inflationary expectations and analysts have forecast another rate hike during the policy review on April 20.