Rupee might weaken, bond yields could appreciate

On Friday, the rupee ended at 62.47 to a dollar

The rupee is expected to weaken this week, as month-end and financial year-end dollar demand from importers will put pressure. Government bond yields, on the other hand, might trade with a bias towards yields rising, as traders could continue to book profits ahead of the close of the financial year.

The government borrowing calendar for the first half of the financial year (April-September) will be released this week and the expectation is that about 65 per cent of the total government borrowing of Rs 5.56 lakh crore worth of bonds will be auctioned.

"The range for the rupee will be between 62 and 63 to a dollar but weakening bias will prevail," said the head of treasury of a large public sector bank (PSB). The rupee ended at 62.47 to a dollar on Friday, compared with the previous close of 62.52.

Traders in banks have been selling bonds ahead of the closing of the financial year and most banks have already made significant gains in their bond portfolios, as in February, yields had dropped significantly.

"The yield on the 10-year bond will be range-bound with a bias towards yields rising. About two-three basis points movement in 10-year bond yields can be seen and the movement of yields can be in both the directions," said a bond trader with a PSB.

The yield on the 10-year benchmark bond ended at 7.75 per cent on Friday, against the previous close of 7.76 per cent.