Yields may remain range bound

The yield on government securities may move in a short range, after they eased last week.

Dealers said yields were moving up due to pressure of high government borrowings. This pressure has subsided as government’s bond issuance plans for first half are coming to an end.

The bond, money and currency trading is closed on Monday on account of Ramzan Id. The yield on 10-year benchmark 6.90 per cent 2019 paper eased to 7.09 per cent on Friday as against 7.36 per cent a week ago. The market sentiment was also influenced by RBI governor’s indication that reversal in monetary policy may not happen till the economic recovery is firmly established.

The government borrowings would be much less in the second half compared to the first half. This should help to hold long-term bond yields in check, said a treasury head of large public sector bank.

On Friday, the G-Sec yields eased by 5-8 basis points tracking reported comments from RBI deputy governor Shyamala Gopinath, hinting that the current monetary stimulus would not be withdrawn in the near future. Moreover, auction results which were in line with market expectations aided the fall in yields.

RBI has scheduled an auction on September 25, 2009 for bonds worth Rs 12,000 crore.

Call rates may ease
The interest rates in the inter-bank market may remain soft on ample liquidity in the system. The second tranche of advance tax payments, which in normal times puts pressure on resource availability, scrapped through without any effect on call market.

The call rate may fall due to a rise in cash supply. The demand for funds may ease because banks have met most of their reserve needs for the current reporting fortnight in the first week itself.

On Friday, the overnight call rate was seen in the range of 3- 4 per cent. Reserve Bank of India absorbed Rs 1,13,740 crore under reverse repo window of Liquidity Adjustment facility (LAF).

Rupee may rise
The rupee may rise against the dollar due to bunched up inflows from exporters after the holiday on Monday.

Rupee may also take cues from the trends in share market and dollar’s movement against international currencies. The rupee closed at Rs 48.14 against greenback The forward premium hardened further across the curve. The six-month forward premium was at 3.02 per cent.