Bond yields seen up in absence of open market ops

The yields on government bonds are expected to move up, as markets do not expect any open market operations (OMOs) from the Reserve Bank of India (RBI) this week. Traders said improvement in liquidity conditions might keep the central bank from undertaking bond purchases through OMOs.

On Friday, yields on the 10-year benchmark government bond closed at 8.15 per cent. Market participants expect the yields to edge up to 8.16-8.18 per cent this week. Also, the government is scheduled to sell Rs 12,000 crore of treasury bills and Rs 15,000 crore of dated government bonds this week.

Liquidity in the system has improved over the last few sessions owing to increased government spending and banks availing export refinance facility from RBI. Liquidity is expected to be around current levels this week. “OMOs may not come this week as liquidity has improved and RBI has always been of the view that OMOs are conducted to address liquidity concerns,” said a dealer with a public sector bank.

On Friday, banks borrowed Rs 11,530 crore for three days at the repo rate of eight per cent. The call money rates ranged between 8.4 per cent and eight per cent, while rates in the collateralised borrowing and lending obligations market ranged between eight per cent and 6.15 per cent. The rupee is expected to open lower against the dollar tomorrow, as investors continue to shy away from risky assets. On Friday, the rupee closed at 55.46 per dollar, down 0.9 per cent from its previous close.

“In the next three months, we expect to see continued volatility in the exchange rate, with the rupee possibly ranging between 54-56.50 per dollar with a 50 paise overshoot on either side,” said Param Sarma, director and chief executive officer, NSP Treasury Risk Management Services.

Earlier last week, the rupee had appreciated to 54 levels on support from foreign funds ahead of the auctions of investment limits in government bonds. Also, weakness in the dollar index against six major currencies had helped the rupee recover up to five per cent of losses from record lows of 57.33 hit last month.