Government bond yields to move up

The yield on government bonds may firm up, with plenty of paper coming into the market as state and central governments plan to mop over Rs 26,000 crore this week.

The large borrowing programme is pushing yields up as is the upward movement in global crude oil prices, bond dealers said. The Centre plans to raise Rs 15,000 crore through long-term bonds and another Rs 5,500 crore through short-term paper (treasury bills). Plus, 10 state governments plan to raise Rs 5,950 crore through 10-year development bonds on Tuesday.

The yields hardened towards opening, awaiting results in G-sec auctions on the last Friday. The yields eased tracking G-sec auction cut-offs, which were in line with market expectations. The 10-year paper “6.05 per cent 2019” closed at Rs 93.90, implying a yield of 6.93 per cent.

Call
Tracking ample liquidity in the system, the interest rates in the overnight inter-bank market are expected to remain steady around 3.25 per cent.

Demand for funds may be on the higher side, as banks may prefer to meet most of their reserve needs in the first week of the new reporting fortnight.

The quantum of amount that banks may offer to place at the reverse repo window may be lower than what was seen last week, as banks’ prefer to meet most of their reserve requirements in the first week itself.

Rupee
The rupee may rise if the dollar stays weak against the euro and the sterling. Dollar sales from exporters may also aid sentiment for the Indian unit. However, dollar demand from importers may limit the rupee’s rise.

The Indian unit snapped a four-day losing streak and ended firm against the dollar, as banks sold the greenback, noting the gains in local share indices. The rupee appreciated and closed at Rs 48.08 against the dollar. The forward premia rates hardened across the curve.