The bond yields snapped a three-day fall on Thursday, rising as investors thought it wise to lock in some profits ahead of auctions of Rs 9000 crore of bonds and inflation data on Friday.
The yield on the 10-year bond yield ended at 7.84%, up from the previous close of 7.78%. “Traders would keep an eye on the price data tomorrow, as a higher reading leaves room for more rate increases by the central bank in the coming months,? a foreign bank trader, said.
Finance minister Palaniappan Chidambaram said on Thursday high crude oil and food prices did not necessarily mean monetary policy would be tightened further, but the government would watch prices closely.
The government will auction Rs 6000 crore of 7.27% bonds maturing in 2013 and Rs 3000 crore of 7.95% 2032 bonds on Friday. That will drain some cash from the market, but conditions are expected to remain comfortable.
Overnight money rates ended at 0.25-0.30%, way below the central bank’s main lending rate of 7.75%, reflecting surplus cash in the system. The Reserve Bank of India (RBI) through its liquidity adjustment facility saw an offer of Rs 108680 crore for absorption under the reverse repo auction from the banking system while it conducted no repo auction on Thursday.
The rupee shrugged off a sluggish start to climb higher on Thursday, powered by strong capital flows into the surging stock market, though suspected central bank intervention capped its gains, dealers said.
The rupee ended at 40.3525/3625 per dollar, moving up from Wednesday’s 40.4150/4250, and heading back towards a nine-year peak of 40.28 hit in late May.
?As soon as the rupee looked like it would test 40.30, the central bank came in and pushed it lower, but the flows were strong today,? said a senior dealer with a foreign bank.
Dealers said foreign investors poured funds into local equities that hit a record level for the 11th time in 14 days. The rupee’s rise has dented the profits of Indian exporters, and India?s third-largest software services exporter, Wipro, said on Thursday the rupee?s rise had an impact of 3.4% on April-June margins.The rupee came under further pressure after a fall in US gasoline stocks pushed up oil prices to above $76 a barrel.