Bond yield may harden further

The yield on government securities may move up further on Monday as Reserve Bank of India (RBI) accepted bids at bond auction at higher cut-off point. Government’s indication to stay on course with borrowing calendar may also push yields. Dealers said the yield on 10-year benchmark (6.90 per cent 2019 paper) surged after RBI set cut-off at 7.30 per cent compared with 7.25 per cent forecast by investors. This means, the government would have to pay more to investors by offering higher coupon rate.

The yield on benchmark could move up to 7.50 per cent in the near future, a head of treasury with small private bank. The benchmark closed at Rs 97.17 implying a yield of 7.31 per cent on Friday as against 7.11 per cent on August 14.

Call
The interest rate in the inter-bank money market is likely to remain soft as the system continues to be flush with cash.

The credit offtake remains low. Also, banks continue to park large amount with the RBI under the liquidity adjustment facility, dealers said. The amount absorbed under LAF Reverse Repo operation was Rs 1,30,875 crore. The demand for funds may be low as banks have met reserve needs for the week end through three-day loans today itself. The money market rates remained range-bound tracking surplus liquidity in the system. NSE overnight mibor was noted at 3.29 per cent. The call range was noted at 3.20-3.30 per cent.

Rupee
The rupee may open up against the dollar if it continues to remain weak against major currencies such as euro and pound sterling. The trend in stock could also impact the rupee value. The rise in shares may prompt banks to sell the greenback on anticipation of inflows from foreign funds. However, dollar demand from oil companies and other importers may prevent a sharp rise in the Indian unit.