Bonds yields may fall; rupee to trade volatile

Government bond yields are expected to ease further this week as the wholesale price index (WPI)-based inflation for March is expected to fall compared with the previous reading.

The WPI rose a faster-than-expected 6.84 per cent in February compared with an annual rise of 6.62 per cent in January. On the other hand, after touching a high of 10.91 per cent in February, consumer price index (CPI)-based inflation eased to 10.39 per cent in March.

The yield on the 10-year benchmark government bond 8.15 per cent 2022 is expected to trade in the range of 7.81 per cent to 7.90 per cent this week and the bias is more towards yields falling, said dealers. The yield on the 8.15 per cent 2022 bond fell three basis points to end at 7.87 per cent over the previous close on Friday.

The yield fell to a four-week low on Friday on renewed hopes of a rate cut by the central bank after CPI-based inflation reversed course and recorded its first fall in the last five months.

Industrial output is barely showing signs of growth with the index of industrial production slipping to 0.6 per cent in February from 4.3 per cent in the corresponding month a year ago.

The rupee is expected to be volatile this week amid falling gold prices and strengthening of the dollar globally among other currencies. It ended steady at Rs 54.52 on Friday compared with the previous close due to recovery in the euro. The recovery in the euro helped mitigate losses brought about by weakness in domestic shares.

The rupee is seen trading in the range of Rs 54.40 to Rs 55 this week.

According to dealers, the central bank may intervene if the rupee breaches the Rs 55 mark against the greenback.