Government bond yields seen falling

The fall in government bond yields are expected to continue this week due to expectations of a repo rate cut in the mid-quarter review of the monetary policy on June 17 and value buying.

On Friday, the yield on the 10-year benchmark government bond 8.15 per cent 2022 ended at 7.40 per cent compared with previous close of 7.39 per cent. During intra-day trades the yield had dropped to 7.32 per cent but in late afternoon trades the yield rose after global rating agency Standard & Poor's said that the outlook on India's long-term rating remains negative though it affirmed its 'BBB-' long-term and 'A-3' short-term unsolicited sovereign credit ratings on India.

"We will see value buying emerging this week due to which the yield on the 8.15 per cent 2022 government bond may drop to 7.30 per cent. During the week the expected trading range is seen at 7.30-7.40 per cent," said a government bonds dealer with a public sector bank.

The Reserve Bank of India auctioned a new 10-year government bond on Friday, which will replace the current 10-year benchmark government bond. The 7.16 per cent 2023 government bond yield ended at 7.16 per cent on Friday. According to dealers next week it will trade in the range of 7.10-7.16 per cent.

However, the rupee is expected to weaken due to emerging month-end exporters dollar demand. The rupee closed at Rs 54.89 on Friday compared with previous close of Rs 54.79 against dollar.

"This week it may trade in the range of Rs 54.70-55.30 per dollar. The bias is more towards weakening," said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.