The yield on 11-year bonds rose to the highest level in more than a week on concern banks will rein in demand for the securities amid a cash shortage and expectations that interest rates will rise.
The overnight loan rate in the local money market touched a one-month high of 7% this week, a sign demand for funds is straining supplies. Yields on debt due 2022 rose 14 basis points in January, after declining in each of the previous two months, as the central bank raised interest rates for the seventh time in a year to contain inflation, which accelerated to 8.43% in December.
?Nobody is bullish on bonds,? said Krishnamurthy Harihar, treasurer at FirstRand in Mumbai. ?The money-market is going to remain tight. The trend in interest rates too is negative for the fixed-income market.?
The yield on the 8.13% note due September 2022, India?s most-traded bond, climbed two basis points to 8.19% on Thursday. That matches the highest level since January 24. The price fell 0.16, or 16 paise per 100 rupee face amount, to 99.51.
The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, declined. The rate, a fixed payment made to receive floating rates, dropped two basis points to 7.40%.
Rupee ends flat at 45.62
Amid a surge in stock markets, the rupee on Thursday ended flat against the US currency as crude prices soared to $103 a barrel in Asian trade. Forex dealers said there was strong demand for dollar from oil importers in view of soaring rise in global crude oil prices due to instability in Egypt.
At the Interbank Foreign Exchange (Forex) market here, the domestic unit opened slightly lower at 45.65 from the previous close of 45.63. The dollar index of six major currencies was up by about 0.2% in European market today. The rupee premium for the forward dollar ended slightly weak on sustained receivings by exporters. The benchmark six-month forward dollar premium payable in July closed a tad lower at 139-141 paise.