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Bond yields might trade with a rising bias this week and the crucial data for the market is the retail inflation data for April that might show an uptick in food inflation. Concerns have been building up in the bond market, as traders feel the scope for further rate cuts by the Reserve Bank of India (RBI) is limited due to rising global crude oil prices and expectations of a below-normal monsoon this year.
Since the start of this month, the yield on the 10-year benchmark bond has already risen by 12 basis points. "This week the 10-year bond yield might continue to remain elevated and the broad trading range will be between 7.90 to eight per cent. It could even touch eight per cent," said the head of treasury of a state-run bank.
RBI will review the monetary policy next month and if the Consumer Price Index-based inflation for May inches up then rate cut hopes will get dampened.
The CPI inflation had unexpectedly slowed to a three-month low of 5.17 per cent in March, as food prices moderated.
Due to rising bond yields treasury officials of banks are concerned about the losses in the treasury portfolio of banks.
But there is some value-buying which has been emerging amount insurers. "We are buying bonds because we might see at least one rate cut in the current financial year," said the head of fixed income of a large insurance company. Since the start of 2015 RBI has cut the repo rate by 50 basis points an currently it stands at 7.50 per cent.
