Bond yields likely to rise this week

The rupee is expected to weaken this week on the back of month-end dollar demand by importers, while government bond yields are expected to rise due to tight liquidity. The rupee ended at 59.35 a dollar on Friday, compared with Thursday's close of 59.68. "Though the Reserve Bank of India (RBI) has taken several steps to arrest the rupee's fall, month-end dollar demand will keep the rupee under pressure," said a currency dealer with a private bank. Friday did see some of the month-end dollar demand but the rupee ended strong because state-run banks were selling dollars on behalf of the central bank. In the recent past, RBI has been intervening a lot in the forex market, due to which its foreign currency assets have been depleting.

As on July 12, its foreign currency assets fell to $252,136 million; it was $261,513 mn on April 5.

According to dealers, the rupee will trade in the range of Rs 59-60 this week.

Government bond yields fell on Friday after Prime Minister Manmohan Singh said the measures to drain liquidity would be temporary and on reports that a sovereign bond issuance was being considered. The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 7.94 per cent, compared with the previous close of 7.99 per cent.

"The yield on the 10-year benchmark is expected to trade in the range of 7.85-8 per cent," said S Srinivasaraghavan, executive vice-president and head-treasury of Dhanlaxmi Bank.

According to government bond dealers, the yield might again touch eight per cent this week, as there is tight liquidity.