Government bond yields rise

Borrowings on Wednesday were Rs 28,835 cr, compared with Rs 48,925 cr on Tuesday

Government bond yields surged on Wednesday after the Reserve Bank of India (RBI) announced further liquidity tightening moves late evening on Tuesday. The yield on the 10-year benchmark 7.16 per cent 2023  government bond ended at 8.42 per cent, up from the previous close of 8.18 per cent.

The yield rose as high as 8.50 per cent during intra-day trades. Borrowings on Wednesday were Rs 28,835 crore, compared with Rs 48,925 crore on Tuesday.

“Yields rose sharply because of further liquidity tightening moves by RBI and it is expected to stay at elevated levels,” said a government bonds dealer with a public sector bank. On Friday, RBI will auction government bonds worth Rs 15,000 crore. Sandeep Bagla, executive vice-president, ICICI Securities Primary Dealership, said: “The Friday auction will decide the trend of the bond market. The auction is coming just a few days before RBI’s monetary policy review on July 30 due to which the market may be nervous.”

However, RBI’s liquidity tightening measures helped the rupee against the dollar on Wednesday. The rupee ended at 59.13 a dollar, compared to 59.77 on Tuesday. It had opened at 59.41, and during intra-day trades, touched a high of 59.01 and a low of 59.60 against the dollar.

As bond yields are expected to remain high, it will help to attract flows from foreign institutional investoRs  (FIIs) into domestic debt, said Verma, vice-president (treasury), Development Credit Bank. That would help in further appreciation of the rupee in the days to come.

According to currency dealer, the strengthening in the rupee was despite heavy month-end dollar demand from importer.

The rupee is expected to appreciate further on Thurday. “The rupee will trade in the range of Rs 58.90 to Rs 59.40 per dollar, while the yield on the 10-year benchmark will trade in the range of 8.40-8.50 per cent,” said S Srinivasaraghavan, executive vice-president and head (treasury) at Dhanlaxmi Bank.