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Government bond yields are expected to rise this week due to concerns that its gross market borrowings (GMBs) for the next financial year would be higher than that for the current year. The rupee, on the other hand, might weaken, as the Reserve Bank of India (RBI) has been constantly mopping dollar flows attracted by domestic markets.
The GMBs stood at Rs 5.92 lakh-crore for the current financial year. For 2015-16, it is expected to be about Rs 6 lakh-crore, as the amount of bond maturities are higher in FY16. “The yield on the 10-year benchmark bond could trade in the range of 7.65 to 7.75 per cent this week and the bias is towards yields rising on concerns of higher government borrowings,” said a bond trader with a state-run bank.
However, trading volumes in government bonds and corporate bonds might continue to be high, as there are expectations that more rate cuts are in store in 2015 after the 25-basis point cut on January 15.
The yield on the 10-year benchmark bond ended at 7.70 per cent on Friday, compared with the previous close of 7.74 per cent. The yields fell on anticipation that softening inflation will trigger another rate cut by RBI in April. “Higher volumes are driven by expectations of monetary easing continuing. We had a surprise rate cut by RBI, and the expectation is if inflation continues to be benign, given the sharp drop in commodity prices, RBI might have more room for cutting rates than what was initially estimated,” said Brijen Puri, managing director and head of markets at JPMorgan.
The rupee could weaken as RBI has been boosting its foreign exchange reserves. These rose to an all-time high of $330.21 billion for the week ended February 6, show data released on Friday.
The rise in reserves was $2.12 billion. This is a consecutive all-time high. The rupee closed at 62.20 to a dollar on Friday, compared with the previous close of 62.31.
