Govt bond yield may show hardening trend

The yield on the government bonds is likely to show a hardening trend on apprehensions about the huge borrowing programme of the Centre and states.

On Friday, the G-sec yields eased on opening, tracking value buying by market participants. However, yields hardened towards closing hours on concerns over upcoming auction supplies. The cut-offs in G-sec auction were bearish leading to further hardening of yields.

Besides union government’s plan for large borrowings, state government has also made a case for higher borrowings. This would mean that the market may be flooded with huge supply of bonds, impacting the yields. The yield on 6.05 per cent 2019 paper ended at 6.89 per cent on June 12 against 6.56 per cent on June 5. The short-term bonds would continue to be preferred by investors and the benchmark 6.05 per cent, 2019 gilt is likely to witness low volumes.

The movement in US treasury yields and crude oil prices will also have a major influence on bond price movement, dealers said.

Call
With ample liquidity in the system, the overnight interbank borrowing are expected to remain soft. The money market rates closed range bound tracking comfortable liquidity in the system. The call rates hovered in 3.10-3.30 per cent band. The overnight CBLO rate was seen in the range of 2.50 to 3.10 per cent. The RBI absorbed Rs 1,32,325 crore under liquidity adjustment facility. It did not infuse any amount under LAF Repo operation.

Rupee
The rupee will see the influence of concerns over increase in India’s import bill as global crude oil prices remains high. India’s rupee closed at 47.61 to dollar this week.

It was the worst week for the rupee since March on concerns that higher crude oil prices would boost India’s import costs.

While the dollar’s weakness in global markets is supportive of rupee’s rise, dollar demand from oil importers would exert negative pressure on the rupee.

On Monday, the rupee may rise as exporters could sell dollars. It may also take cues from local share market movements and dollar’s performance against global currencies.The greenback’s weakness against global currencies may also prompt banks to sell dollars. But, dollar demand from importers may limit a sharp rise in rupee.