Bond yields near 7-yr high

The 10-year bond yield ended at 8.78 per cent today, off an intraday peak of 8.82 per cent but higher than yesterday's close of 8.75 per cent. It touched a seven-year high of 8.86 per cent last week.

The volume in the government paper was low at Rs 1,015 crore on RBI's trading platform. Soaring crude oil prices and inflation at 11.42 per cent dampened the mood in the government securities market today. The yield on the most traded paper (the 10-year government bond) is expected to cross 9 per cent, said IDBI Gilts Managing Director N S Venkatesh.

The higher yield may impact the remaining part of the government's borrowing progarmme for 2008-09. It could mean a high interest burden, a situation both RBI and government will not like see.

The market perception is inflation based on wholesale price index, will not show any sign of easing any time soon. It may peak to 13 per cent, said another bond dealer.

Market participants expect record oil prices to keep inflation in double digits and cash outflows this week are likely to reduce the appetite for debt. Annual inflation hit 11.42 per cent in June, the highest in more than 13 years, following a rise in state-set fuel prices earlier in the month. Union Finance Minister P Chidambaram said last week inflation would stay in double digits for some weeks to come.