The yield on government securities may move up further on aggressive bids placed by banks and market participants and partial devolvement at the bond auction.
For the new seven year paper (2016), RBI set a stiff cut-off of 7.02 per cent. The government planned to raise Rs 6,000 crore through the seven year paper. There was a partial devolvement of Rs 285 crore on the primary dealers.
The yield on 10-year benchmark (6.90 per cent 2019) closed at 7.10 per cent as against 7.04 per cent on Saturday, according to Negotiated Dealing System (NDS) data.
Dealers said players put aggressive bids at auction, indicating that the interest rates could move up further as market awaits clarity on how government would manage funding for draught management. This is additional concern over and above the higher borrowing to fund spending on fiscal stimulus.
For the last few days, fear that interest rates were set to rise soon has been prompting the market players to prefer short-tenure papers, dealers added.
Call rates: The interest rates in interbank market may show tendency to rise as banks start covering for the reporting fortnight.
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Market analysts said call rates may show tendency for upward movement but huge liquidity in the system will prevent sharp rise.
Banks continue to park huge sums with RBI at reverse repo window. The central bank absorbed over Rs 96,000 crore in the first Liquidity Adjustment Facility.
Rupee : The rupee may turn weak further against US dollar if the greenback rises against major currencies like the euro and pound sterling in the overnight market.
However, dollar demand from importers may limit the rise in the local currency.
The rupee ended down against the US dollar on Friday as banks bought dollars as local share indices closed weak. Also, importers’ and defence-related dollar demand dragged the rupee down, dealers said.
There was heavy demand from importers including oil companies. The rupee ended at 48.25 to a dollar, 0.9 per cent decline over previous week’s close.