Yields seen up on fresh supply, inflation data eyed

The bond market rallied on Friday as the government’s borrowing plan for the financial year 2011-12 began. Yields are expected to move up further, as fresh issuances of Rs 12,000 crore are lined up this week.

Market participants will also watch out for the inflation data for the month of March, scheduled for release on April 14. The Reserve Bank of India (RBI) has projected inflation to be at eight per cent for March.

“Fears of high inflation sustaining could push yields higher,” said Ramanathan K, chief investment officer, ING Investment Management. The Wholesale Price Index for the month of February was 8.31 per cent, higher than the 8.23 per cent in January.

The food inflation data that is published weekly showed some signs of respite as it came down to 9.18 per cent on March 26 from 9.5 per cent a week ago. “If we go by the weekly data, overall inflation is expected to cool to close to eight per cent in March,” said a treasury official from a public sector bank.

The new 10-year government bond is also expected to inch up, as there is high demand for the paper and supply was only Rs 5,000 crore in its first auction on Friday. “The yields on the new 10-year bond can even go up to 7.90 per cent this week,” said a bond dealer with a domestic brokerage. The 7.80 per cent gilt maturing in 2021 ended at 7.86 per cent, higher than its cut-off yield that came in at 7.80 per cent, below market expectations.

The yield on the 8.13 per cent gilt maturing in 2022 was up at 8.12 per cent on Friday, higher by seven basis points from the earlier close. It is the highest level since February 25.