Bond yields likely to fall; Rupee may breach 55/$

Government bond yields are expected to ease further this week amid comfortable liquidity in the system. The rupee, on the other hand, may breach Rs 55 per dollar.

Liquidity is comfortable and this is evident from the fact that bank borrowings under the Reserve Bank of India's (RBI) liquidity adjustment facility (LAF) was at Rs 48,765 crore compared with Rs 52,055 crore on Thursday. Last month, the daily average borrowing under LAF was nearly Rs 1 lakh crore.

On Friday, the yield on the 10-year benchmark government bond 8.15 per cent 2022 ended at 7.93 per cent compared with the previous close of 7.96 per cent. According to dealers, the yield is expected to trade in the range of 7.88-7.95 per cent this week.

On Friday, the first government bond auction worth Rs 15,000 crore sailed smoothly. RBI sold four government bonds, namely the 8.12 per cent 2020 worth Rs 4,000 crore, 8.33 per cent 2026 worth Rs 6,000 crore, 8.32 per cent 2032 worth Rs 2,000 crore and the 8.30 per cent 2042 worth Rs 3,000 crore.

The Street is expecting RBI to auction a new 10-year benchmark government bond soon, as the outstanding on the existing benchmark bond is already Rs 70,000 crore.

Meanwhile, the rupee is expected to trade in the range of Rs 54.50-55.10 per dollar this week. However, dealers are of the view that RBI may step in if the rupee breaches the Rs 55 mark per dollar.

On Friday it ended at Rs 54.81 compared with the previous close of Rs 54.88. The rupee ended strong on Friday amid thin trade.