Bond yields expected to fall; Re seen volatile

Government bond yields are expected to fall from current levels and the rupee is expected to stay volatile this week. Government bond yields are expected to fall as the Reserve Bank of India (RBI) after market hours on Friday announced the first Open Market Operations (OMO) purchase of government bonds for the current financial year.

RBI will conduct OMO up to Rs 10,000 crore on Tuesday for four government securities, namely 8.07 per cent 2017 (July), 7.35 per cent 2024, 8.20 per cent 2025 and 8.28 per cent 2032.

The yield on the 10-year benchmark government bond 8.15 per cent 2022 ended at 7.74 per cent on Friday, compared with the previous close of 7.72 per cent. During intraday trades, the yield touched a high of 7.81 per cent. RBI said in its monetary policy statement that the balance of risks stemming from RBI's assessment of the growth-inflation dynamic yields little space for further monetary easing.

"The yield on the 8.22 per cent 2022 government bond is expected to trade in the range of 7.75 per cent to 7.67 per cent this week," said S Srinivasaraghavan, executive vice president and head- treasury of Dhanlaxmi Bank.

The rupee is expected to trade volatile due to dollar demand. It ended at Rs 53.94 on Friday compared with the previous close of Rs 53.82. The rupee weakened on Friday, as RBI disappointed markets with a hawkish tone in its annual monetary policy.

According to Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai, the rupee is expected to trade in the range of Rs 53.75 to 54.50 this week.