Rupee seen weakening, yields could fall

Government bond yields could fall this week because of demand from traders and the rupee would also weaken from its current level, due to month-end dollar demand from importers.

The largest bond auction by the Reserve Bank of India (RBI), on Friday, met with success as the entire Rs 20,000 crore got subscribed. "Bond buying will continue this week, too, particularly from insurance companies, as they are investing their premium money received in March," said a trader with a public sector bank.

The yield on the 10-year benchmark government bond dropped 11 basis points on Friday, to close at 8.85 per cent, compared with the previous close of 8.96 per cent.

Earlier in the week, consumer price inflation (CPI) data for March was released. The headline CPI accelerated to 8.31 per cent year-on-year from a 25-month low of 8.03 per cent in February. This had dampened bond market sentiment.

The rupee had ended stronger on Friday at 60.29, compared with the previous close of 60.39 a dollar. The appreciation was driven by gains in domestic equities.

"The rupee might trade in the range of 60.20 to 61.50 this week. The weakness might emerge due to month-end dollar buying by importers," said a currency dealer with a state-run bank. According to currency dealers, even if the rupee appreciates, the gains will be very temporary and a bias is seen towards weakening.