Gilt yields set to fall further Re seen volatile

Gilt yields are expected to fall further this week on expectations of a rate cut later this month.

The Street expects the yield on the 10-year benchmark 8.15 per cent 2022 gilt drop to 7.90 per cent this week. Its yield closed at 7.93 per cent on Friday, compared with the previous close of 7.97 per cent.

Friday was the 10th consecutive trading session when this fell. The other reason was that the Reserve Bank of India (RBI) shifted a gilts auction scheduled last week and infused Rs 7,845 crore by way of open market operation purchases.

Last week was the best one for gilts since April, on optimism that RBI would cut the repo rate in its third-quarter review of monetary policy on January 29, by 25 basis points at least. The rate is currently eight per cent and was cut just once this financial year, by 50 basis points in April.

Gilt dealers believe if RBI cuts the repo by 25 basis points on January 29, then the yield on the 10-year benchmark will drop to 7.85 per cent. If there is a 50 basis points cut, it might drop to 7.75 per cent.

The rupee will remain volatile this week. According to S Srinivasaraghavan, executive vice-president and head of treasury at Dhanlaxmi Bank, the range seen is between Rs 54.25 and Rs 55.25 a dollar.

The rupee ended weak on Friday as banks increased their purchase of the dollar in the last hour of trade, noting the fall in the euro. The rupee ended at 55.08 against the dollar, compared with the previous close of 54.49.