On Wednesday, bond yields inched towards seven-year highs, as investors expected record oil prices to keep inflation in double digits and cash outflows this week reduce appetite for debt.

The 10-year bond yield ended at 8.78%, off an intra-day peak of 8.82% but higher than Tuesday’s close of 8.75%. It touched a seven-year high of 8.86% last week.

Volumes were low at Rs 1,015 crore on the central bank’s trading platform.

“We are preparing for the 10-year at 9% if the cut-off at Friday’s auction is above this level,” a trader with a primary dealer said.

They will auction Rs 6,000 crore of 10-year bonds and Rs 4,000 crore worth bonds maturing in 2032 on Friday.

Moreover, the first of two 25 bps increase in CRR takes effect on Saturday, which would drain cash from the banking system.

Call money rate ended lower on Wednesday due to weak demand for funds ahead of the reserves reporting day, said dealers.

The one-day call rate closed at 7.00-7.50%, compared with 8.40-8.60% Monday for two-day loans.

“We are almost at the end of the reporting fortnight. Most banks have already met their reserve needs. Hence, demand will be low,” said a dealer with a state-run bank.

Total traded volumes in the call market were Rs 12,500 crore, as against Rs 17,300 crore on Monday.

The central bank infused only Rs 1,600 crore through repo and absorbed Rs 600 crore through reverse repo.

Meanwhile, the rupee rose, recovering from 15-month lows on the back of a 5.4% surge in the stock market, but high crude prices may continue to exert downward pressure on the local unit.

It ended at 43.17/18 per dollar, off a low of 43.39, 0.4% stronger than Tuesday’s close of 43.34/36.

“Once the stock market started rallying, banks who were sitting on long-dollar positions started unwinding them. The RBI doesn’t seem to be trying to defend any particular level on the rupee now, so it will be directly related to the stock movement and oil prices,” said a chief dealer with a state-run bank.

Traders said offshore-related arbitrage dollar buying, which was a major factor in the rupee’s 0.7% fall on Tuesday, was barely seen on Wednesday, easing some of the pressure. One-month offshore non-deliverable forward contracts were at 43.62/72 per dollar, weaker than the onshore rate.