Bond yields may continue upward movement

The yield on government bonds may harden if the inflation data for month of November indicates that prices of various products have moved up.

Dealers said the market will keenly watch price data. A rise in inflation above four per cent would push up yield further. It may prompt Reserve Bank of India (RBI) to take early steps, including raising interest rates to rein in inflationary expectation.

On Friday, the bond market opened on a weak note, tracking fall in US treasuries and concerns over industrial production data. As the reading on October IIP was softer than expected, the market improved considerably.

The market continued to trade range-bound as the auction cut-offs were in line with expectations. The yield on 6.90 per cent 2019 paper rose sharply to close at 7.57 per cent as against 7.47 per cent on December 4, as effect of sharp uptick in food prices in 11 years.

Call rates may remain soft
The interest rates in the inter-bank overnight lending market are expected to remain soft on comfortable liquidity in the system.The overnight call rates moved between 3.10-3.35 per cent.

On Friday, RBI absorbed Rs 1.02,930 crore under Reverse Repo operation. It did not infuse any amount under repo operation.

Rupee may remain range-bound
The rupee may move in a range as response to the flow of capital in the stock market and fluctuation in the value of US dollar in global currency market.

On Friday, the rupee closed at Rs 46.55 against the dollar.

The most actively traded currency future contract for the dollar was December 29. The last traded price for this contract was Rs 46.61. The forward premium curve moved higher and the six month forward premium was at 2.73 per cent. The one-month rupee contract in the non-deliverable market is currently being traded at Rs 46.47/46.52.