10-yr yield up to 5.41%, rupee drops to 45.34

Bond prices crashed yesterday pushing the yield on benchmark 10-year paper to a 10-month high. The crash was triggered by a widespread apprehension of a hike in interest rates globally and the announcement of a Rs 9,000 crore government securities auction.

In sync with global appreciation of dollar to all other major currencies, the rupee also depreciated to close at 45. 33/34 against the dollar after opening at 45.15/18 against Friday's close of 45.1550/1650. The spot rupee lost almost 23/24 paise during the day.

The yield on the 10-year benchmark 7.37 per cent 2014 paper closed at 5.41 per cent against 5.33 per cent on last Friday. It closed at its highest level since August 23 last year when it finished at 5.4392 per cent.

At the longer end, prices fell by almost Re 1 with 8.07 per cent 2017 per cent, closing at 5.82 per cent against a close of 5.72 per cent. In the five year segment, the yields went up by 7-8 basis points.

While apprehensions are rife over global hardening of interest rates, dealers are anxious about any rise in the inflation data to be released by the US Federal Reserve on Tuesday.

The domestic inflation rate has also been on the rise. Amid these bearish notes, the RBI yesterday announced auction of Rs 9,000 crore worth of government securities to be held on June 17.

The auctions will include reissue of 7.38 per cent 2015 for Rs 6,000 crore and 6.13 per cent 2028 for Rs 3000 crore.

The rupee even went down to a low of 45.35/36 during the day. Dealers attribute the depreciation to dollar buying by banks and the central bank for oil payments some of which are due on June 15.

There was massive demand for dollars in the system while there was no adequate foreign exchange supplies to match the demand, said a dealer.

The weakness in the stock market "" where the BSE Sensex lost 1.8 per cent "" had depressed sentiment in the foreign exchange market by fuelling worries that foreign funds may stay away.

Foreign institutional investors started buying local shares earlier this month after selling $738.5 million in May. However, they have started paring positions with data showing they sold $13.5 million in shares on Thursday.