Bond yields may move up

The yield on government bonds may inch up on Monday on the effect of aggressive bids placed at bond auction last week.

The yields hardened after Reserve Bank of India announced results on Friday. The 10-year benchmark paper (6.90 per cent 2019 paper) touched yield levels of 7.39 per cent. However, the yields eased towards close tracking value buying by market participants. The yield on the benchmark closed at 7.33 per cent, as against 7.31 per cent a week ago. Dealers said perhaps the market is giving a signal that RBI needs to increase open market operations to buy more securities to soften yields.

The G-Sec auction worth Rs 12,000 crore saw devolvement in two of the three securities. The cut-off was set at Rs 97.44 for auction of 7.02 per cent 2016 paper, implying a yield of 7.44 per cent. There was a devolvement of Rs 431 crore in this security. The cut-off was set at Rs 99.60 for 7.94 per cent 2021 paper, implying a yield of 7.99 per cent. There was a devolvement of Rs 271.78 crore in this security.

Call rates to remain soft
The interest rates (call rates) in inter-bank market are likely to remain soft on ample liquidity in the system.

The money market rates remained range-bound, tracking surplus liquidity in the system. Mumbai Inter Bank Offered Rate (MIBOR) was 3.27 per cent. The call rates moved in band of 3-3.30 per cent. RBI, on Friday, absorbed Rs 1,54,200 crore under the Reverse Repo window of the Liquidity Adjustment Facility.

Rupee may rise
The rupee may rise as banks may sell the dollar on the view that stocks could move up on bourses. Banks may also sell the greenback if it falls against global currencies. However, dollar demand from importers may limit a rise in the rupee. On Friday, the rupee appreciated and closed at Rs 48.67 against the dollar. The forward premium rates hardened across the curve. The six-month forward premium was at 2.52 per cent.