The country?s bond yields on Thursday jumped to fresh six-year highs with data to be released on Friday expected to show inflation spiked in early June to nearly 10%, pushed up by a recent increase in fuel prices.
The 10-year benchmark bond yield ended at 8.47%, higher than Wednesday?s close of 8.37%. It hit a peak of 8.49% in late afternoon trade, its highest since May 2002.
The Reserve Bank of India (RBI) raised its key lending rate by 25 basis points last week to contain inflation expectations, its first increase in more than a year, and dealers expect more tightening ahead.
?Double-digit inflation numbers are expected so market will be on tenterhooks before some policy action from RBI comes,? said Prasanna Patankar, senior vice-president at STCI Primary Dealer.
?We don?t know whether it is coming, but clearly, expectations will get built either in the policy or before the policy. Till that point, the market will be nervous,? he said.
Fresh supplies amid tight cash conditions in the market, due to payment of taxes by corporates last weekend, also kept investors? mood subdued. The RBI will auction Rs 6,000 crore worth bonds on Friday.
Call money rate ended firm due to tight liquidity after advance tax outflows, dealers said.
The one-day call rate ended at 8.00-8.05% compared with 8.05-8.10% onWednesday.
About Rs 20,000 crore will be out in the form of advance tax payments for the current financial year.
Banks borrowed Rs 11,575 crore from RBI?s repo tender compared with Rs 6,270 crore on Wednesday.
Meanwhile, the rupee fell towards 43 per dollar as stock market losses heightened concerns of more outflows, but traders said the losses were curbed by suspected central bank intervention.
It ended at 42.97/98, weaker than Wednesday?s close of 42.895/905.
Dealers said some state-run banks acting on behalf of the central bank sold dollars near 42.97 to ease pressure on rupee, but there was heavy demand for dollars from banks who were repatriating funds of overseas clients.
Foreigners have so far sold a net $5.8 billion of shares, helping push the rupee down more than 8%.