Bonds suffer biggest weekly loss since Apr

The yield on the 10-year benchmark bond ended at 8.73% compared with previous close of 8.69%

Government bonds (G-secs) completed their biggest weekly loss since April on concerns that a below-normal rainfall and the rising global oil prices would fuel inflation, reducing scope for monetary easing by the Reserve Bank of India (RBI). According to bond traders, the yield is likely to rise further next week due to which banks might have to take a hit on their treasury portfolio in the current quarter.The yield on the 10-year benchmark bond ended at 8.73 per cent, compared with the previous close of 8.69 per cent. The yield had ended at 8.77 per cent on May 21.

Brent crude headed for a second weekly advance as escalating violence in Iraq threatens to hurt supplies. India, which imports about 80 per cent of its oil, already faces the prospect of inadequate monsoon rainfall impacting farm output and thwarting efforts by policy makers to curb price gains.

“Due to the Iraq crisis, there is no demand for bonds by traders. We had not expected the yield to climb up so fast. This is a cause of concern for banks,” said the head of treasury of a public sector bank.

The monsoon, which accounts for more than 70 per cent of annual rainfall, has been 42 per cent lower than the 50-year average since June 1, the weather department said on its website on Thursday.

“The spurt in oil prices has compounded India’s problems as a potentially weaker monsoon already caused inflation worries,” said Sagar Shah, deputy vice-president for treasury at RBL Bank. “Investors don’t wish to go long until the Iraq crisis is seen resolving,” he added.  The Street now awaits the Union Budget as that shall provide some clarity on the government’s borrowing programme in the current financial year. According to the vote-on-account announced in February, gross government borrowing shall be Rs 5.97 lakh crore, while the net figure stood at Rs 4.57 lakh crore.