Govt bond yields seen rising; rupee may weaken

Government bond yields are expected to rise further this week amid concerns surrounding political instability and doubts about further repo rate cuts. In the mid-quarter review of the monetary policy, held on Tuesday, the Reserve Bank of India (RBI) said "the headroom for further monetary easing remains quite limited".

The yield on the 10-year benchmark government bond 8.15 per cent 2022 ended at 7.96 per cent compared with the previous close of 7.94 per cent. During intra-day trades, the yield touched a high of 7.98 per cent and a low of 7.93 per cent.

"The yield may touch eight per cent this week as traders are in the process of making their government bonds portfolio lighter and shall go for fresh purchases in the auctions, which will start from next month," said a government bonds dealer with a public sector bank.

RBI had cut the repo rate in the mid-quarter policy review. But the bleak possibility of further rate cuts and front loanding of the government's borrowing programme did not help bond market sentiment much. The borrowing programme starts in April. Every week government bonds worth Rs 15,000 crore will be on sale.

The rupee is expected to weaken further from current levels this week. The rupee ended at Rs 55.34 on Friday against the dollar compared with the previous close of Rs 54.28.

According to Pramit Brahmbhatt, chief executive officer, Alpari Financial Services, the rupee is expected to trade in the range of Rs 54.20-54.80 this week and the bias is more towards weakening. "The uncertainty in Europe regarding Cyprus as well as Bank of Japan planning to get the Japanese yen weaker against dollar and other currencies would result in strengthening of the dollar."