Bond yields to move in narrow range

The yield on government bonds might move in a narrow range in opening trades on Monday, awaiting policy rate action in the mid-quarter policy review.

Liquidity might see minimal pressure, despite about Rs 60,000 crore moving out of the system on account of payment of second tranche of advance income tax.

Dealers and treasury executive said the higher-than- expected inflation reading for August and increase in fuel prices exerted upward pressure on bond yields. But, with liquidity remaining comfortable, yields might not rise much.

The Reserve Bank of India (RBI) would release its mid-quarter review on monetary policy tomorrow. With rising inflation, market is expecting RBI to keep repo rate on hold at eight per cent.

Government bond prices fell on Friday, giving up earlier gains after a spike in inflation led investors to trim back their expectations for rate cuts next week. The benchmark 10-year bond yield rose by one basis point to 8.18 per cent, after earlier falling to 8.10 per cent, the lowest level since July 26.

The government’s decision to raise diesel prices to rein in the subsidy bill made little difference to market sentiment, said a bond dealer with a public sector bank.

For the week, the 10-year bond yield decreased by two basis points compared to last week’s close of 8.20 per cent. On liquidity conditions, dealers said it would remain comfortable and call rates may not harden much, though some money was going for tax payments.