On Tuesday, Indian bond yields rose to their highest in more than a month as traders positioned for an expected rise in state-set fuel prices. The 10-year bond yield ended at 8.12%, off an intraday peak of 8.13%, highest since April 29. It had ended at 8.09% on Monday. Volumes were moderate at Rs 2,740 crore.?
Trading should pick up once the uncertainty over the fuel price hike is cleared,? a trader said. ?The market is nervous over the quantum of the increase.? India?s cabinet will consider on Wednesday a proposal to raise fuel prices, an oil ministry official said.
A fuel price rise would increase the annual inflation rate, which was already at 8.1% in mid-May, highest in more than 3-? years. Traders feel that higher inflation may prompt a monetary policy response. The central bank will auction Rs 4,000 crore of treasury bills on Wednesday and Rs 10,000 crore of bonds on Friday. Call money rate ended down today as cash supply was adequate amid subdued demand.
The one-day call rate ended at 6.00-6.10% compared to Monday?s close of 6.50-6.75%. Most banks were flush with funds and parked close to Rs 27,900 crore with the central bank through reverse repo.
Meanwhile, the rupee fell as there was heavy dollar buying by oil importers and a shaky stock market raised concerns of a possible dollar shortage in the market.
It ended at 42.60/61 per dollar, half a percent weaker than Monday?s close of 42.40/41. Analysts expect the central bank will maintain recent efforts to support the currency, including through market intervention on falls beyond 43 per dollar.
One-month offshore non-deliverables forwards were quoting at 42.65/42.75, slightly weaker than the onshore rate. ?Demand conditions for the dollar-rupee are still heavy and until there is further clarity on the central bank?s move on oil companies, the pair should trade in a broad 42.20-42.90 band,? said Indrajit Sengupta, chief dealer at state-run Canara Bank. The central bank said on Friday it would provide foreign exchange to oil refiners against their oil bonds, a move analysts said would lessen dollar demand in the market.