Bond yields may remain range-bound

The yield on government bonds may move in narrow band as dealers look for cues from industrial sector growth data for August.

Treasury officials said market is looking for some clarity on direction of monetary policy stance. While Prime Minister Manmohan Singh said the stimulus package will continue now, RBI Governor D. Subbarao reiterated that easy money policy reversal will happen sooner compared with other countries.

Investors may also look for signals on long expected hike in the limit on held to maturity category (HTM) for parking government securities. RBI deputy governor K C Chakraborty on Saturday indicated that RBI would deal with the issue in the second quarter review of the monetary policy scheduled on October 27.

The government plans to raise Rs 10,000 crore through a bond auction scheduled on October 16 may also have an impact on sentiment.

On Friday, government bond yields hardened by 5-10 basis points tracking bearish results at the auctions and development on primary dealers under two securities. The benchmark 10-year paper 6.90 per cent 2019 paper closed at Rs 97.08 implying a yield of 7.32 per cent.

Call rates to remain soft
The interest rate in the overnight inter-bank market may remain soft on the ample liquidity in the system. Banks are likely to start covering positions for reporting fortnight from Monday.

IDBI Gilts said on Friday the liquidity situation remained comfortable and the money market rates were soft. The overnight call rate moved between 3.0 to 3.30 per cent.On Friday, RBI absorbed Rs 1,27,880 crore under reverse repo operation. It did not infuse any amount under Repo facility.

Rupee may turn weak
Rupee may begin the week on weak note if the dollar stays firm against major global currencies like the euro and pound sterling. The market will also take cues from the dollar’s movement against other Asian currencies. Dollar demand from importers may add to the rupee’s fall Monday. However, exporters’ dollar sales may prevent a sharp depreciation.