Yields on government bonds may harden

The yield on Government Securities (G-sec) may continue to harden on Monday as investors will offload positions ahead of the government bond auction for Rs 15,000 crore due on Thursday.

The factors to look for are the cut-offs in G-sec auction, dealers said. On Monday, gilt prices may continue to come under pressure as investors may want to stay light, eyeing the supply of bonds.

After selling bonds worth Rs 15,000 crore on Friday, Reserve Bank of India will auction bonds worth Rs 6,000 crore (of 7.59 per cent, 2016 bond), Rs 3,000 crore (of 7.94 per cent, 2021 bond), Rs 3,000 crore (of 8.24 per cent, 2027 bond), and Rs 3,000 crore (of 7.40 per cent , 2035 gilt).

The market is apprehensive of large scale borrowing by the new government to fund the stimulus package. The fiscal deficit remains high, which the RBI Governor, D Subbrao, flagged last week. He said government needs to return to the path of fiscal consolidation to make economic recovery sustainable.

The surplus liquidity may continue to lend some support to prices. The information on crude oil prices and recovery of US economy would also have a bearing on market trends, said a bond dealer with a public sector bank.The 10-year benchmark 6.05 per cent, 2019 paper is seen moving in the 6.35-6.50 per cent band after settling at 6.48 per cent on Friday.

Call

The call money rate is likely to stay steady on Monday, as banks’ demand for funds will be met by the surplus liquidity in the system.

Intra-day demand may rise, as banks are likely to rush to cover their reserve needs for the new reporting fortnight (banks have to meet the prudential norms on Cash Reserve Ratio and Statutory Liquidity Ratio by end of Friday).

The one-day call rate is likely to move in the 3.25-3.30 per cent band on Monday. Banks may park around Rs 100,000 crore at RBI’s Reverse Repo window on Monday, compared with Rs 135,000 crore parked on Friday.

Rupee

The rupee is likely to stay firm, as banks may sell dollars on global weakness.

Dollar sales from exporters and inflows from foreign funds may also aid the rise in rupee. It strengthened 4.9 per cent to 47.12 a dollar, in trading week ended May 22. It had closed at 49.40 on last Friday. However, the dollar demand from state-owned banks on behalf of the RBI may limit the rupee’s rise.