Bond yields likely to fall, rupee might weaken

Government bond yields are likely to fall further this week, with expectations increasing for a rate cut by the Reserve Bank of India in the current financial year itself, which is triggering bond-buying among traders. The rate cut expectations are fuelled by softening inflation numbers.  

The yield on the 10-year benchmark government bond is already at a one-month low.  The yield ended at 8.36 per cent on Wednesday compared to the previous close of 8.37 per cent.

The bond market was shut on Thursday and Friday on account of Diwali.

“The yield on the 10-year bond may fall to 8.30 per cent this week. The broad trading range is seen at 8.30-8.38 per cent. The bias is towards falling yields,” said the head of treasury of a state-run bank.

The Street expects that six months down the line, the 10-year yield might even fall to eight per cent. Consumer Price Index-based inflation cooled to 6.46 per cent in September, the lowest since January  2012, owing to falling prices of fruits and vegetables.

The rupee is expected to fall this week, weighed down by month-end dollar demand from importers and dollar demand after a two-day holiday in the domestic foreign exchange market.

“The rupee may weaken to 61.40 this week. The bias is towards weakness,” said a currency dealer with a state-run bank. There is also nervousness ahead of the US Federal Reserve’s policy-setting committee meeting this week.

The rupee had ended at 61.28 on Wednesday compared to the previous close of 61.32 to a dolla