 "Rupee stares at volatility, bonds to rise further")
The bond and currency market are likely to be under pressure ahead of the Reserve Bank of India (RBI)'s policy review on December 1 but might gain sharply in the week ahead if the central bank opts for a rate cut.
According to a Business Standard poll, however, none of the respondants expects the central bank to cut rates.
On Friday, the rupee fell to its 26-month low at 66.8975 to a dollar, but clawed back to close at 66.76 per dollar after Prime Minister Narendra Modi said he would reach out to the opposition to ensure smooth passage of the Goods and Services Tax Bill.
Bonds mirrored the loss in rupee to close at 7.76 per cent on Friday, more than a percentage point over the policy repo rate. If RBI maintains its status quo, as expected by the market, yields might inch up further. Prices of bonds fall as yields rise.
However, the fall in bond prices can come as an insurance for India as foreign investors might slow down liquidating their debt holdings, said Soumyajit Niyogi, rates analyst at SBI DFHI. Foreign portfolio investors (FPIs) have been aggressively liquidating their bond investments.
So far, FPIs' have sold about Rs 3,000 crore of their investment in bonds.
According to a Business Standard poll, however, none of the respondants expects the central bank to cut rates.
On Friday, the rupee fell to its 26-month low at 66.8975 to a dollar, but clawed back to close at 66.76 per dollar after Prime Minister Narendra Modi said he would reach out to the opposition to ensure smooth passage of the Goods and Services Tax Bill.
More From This Section
Technical charts show good support for the rupee at the level of 66.9 a dollar, but some volatility could be expected in the week as the volume in the currency market has thinned.
Bonds mirrored the loss in rupee to close at 7.76 per cent on Friday, more than a percentage point over the policy repo rate. If RBI maintains its status quo, as expected by the market, yields might inch up further. Prices of bonds fall as yields rise.
However, the fall in bond prices can come as an insurance for India as foreign investors might slow down liquidating their debt holdings, said Soumyajit Niyogi, rates analyst at SBI DFHI. Foreign portfolio investors (FPIs) have been aggressively liquidating their bond investments.
So far, FPIs' have sold about Rs 3,000 crore of their investment in bonds.