The yield on 10-year government paper is expected to remain beyond 8 per cent next week due to pressure from the higher cut-off point set for accepting bids in the first bond auction for 2010-11 last Friday.
Dealers said the Reserve Bank of India’s decision to a set cut-off at 7.96 basis points came as a surprise to the market which was expecting about 7.90 per cent at the auction for benchmark (6.35 per cent 2020) paper. This was being seen as a signal to the market to be ready for a higher interest rate regime.
Besides RBI action, the pressure of a large government borrowing programme, inflation and Index of Industrial Production numbers for February may also weigh on the yield movement, they said.
The closing yield on the benchmark was 8.01 per cent, as against 7.79 on Thursday. The yield had closed at 7.85 per cent on April 1. There was a devolvement for 10-year benchmark paper at the very first bond auction of the year. It reflected the bearishness in the market. The government plans to raise Rs 13,000 crore this week, for which RBI has lined up an auction on April 15.
Call rates to soften
Interest rates in the interbank overnight lending market are expected to soften on ample liquidity in the system.
This being the first month in the new financial year (2010-11), the pressure for business is low. Though banks cover their product requirements for the reporting fortnight in the first week, the resources are ample, money market dealers said.
On Friday, there was excess liquidity in the system, as leading repo rates saw lows of 0.50 per cent. RBI absorbed Rs 55,615 crore at the second Liquidity Adjustment Facility (LAF). The overnight call rate moved in a range of 2.80 per cent to 3.55 per cent.
Rupee to remain up
The firm flow of overseas portfolio investment into the capital market and global dollar weakness may push Indian rupee up against the greenback. On Friday, the rupee appreciated substantially, to close at a 19-month high of 44.28.
The one-month forward premium was 3.46 per cent. It may stay firm if the euro and the pound sterling rise against the dollar. Dollar sales from exporters may also aid. The rupee may also take cues from local share indices that are likely to eye the Index of Industrial Production.
