The 10-year bond yield hit the 8% mark for the first time since October 2008 as the money market grew cautious about next year?s government borrowing programme.

On Monday, the 6.35% note maturing 2020 closed at 8%, after touching an intra-day high of 8.02%, the highest level in 17 months. It had closed at 7.97% on Friday.

Ananth Narayan, MD & head of rates for South Asia financial markets at Standard Chartered Bank, said, ?The market is keeping a close watch on the new borrowing programme starting in April. Most of the front loading would happen in the first half of the year, especially during the first quarter.? He added that once the supply begins, we could see the yields touching 8.25-8.5%.

RK Gurumurthy, head of trading (financial markets) at ING Vysya Bank said the market widely expected a front loaded calendar and therefore, one could expect at least 60-65% of total borrowing completed by September.

?We also have reasonably good amount of redemptions in May and July, therefore the borrowing calendar will consider this and have a larger share of auctions in these months,? he added.

During the Union Budget 2010-11, the government announced the borrowing programme at Rs 4.57 lakh crore, slightly higher than Rs 4.51 lakh crore for 2009-10.

Dealers also noted that apart from the government programme, inflation is also putting pressure on the bond yields.

?A hike in the excise duty is outing pressure on various segments steel and cement, thereby contributing to a higher inflation. Thus, we expect the yields to remain high for now,? Narayan added.

Data released on March 4 by the commerce ministry showed that food prices rose by 17.87% in the week ended February 20, following a 17.58% gain the previous week.

Meanwhile, the rupee closed at 45.53 against the dollar, after touching an almost two month high of 45.38, in the intra-day trade.

?An improvement in the sentiment of the equity markets could be considered as a short term trigger for a strengthening rupee,? said Gurumurthy.

Analysing the rupee movement, Jamal Mecklai, CEO at Mecklai Financial, said the currency has appreciated by 1.6% this year, the second-best performance among the 10 most-active Asian currencies outside of Japan.

?The rupee has sustained a positive bias since the Budget unveiled plans to cut the fiscal deficit and boost revenues from privatization. Going ahead, the dollar index would be the main factor driving the direction in the rupee,? said Mecklai.

The dollar gained in the past fortnight on the back of concerns about the fiscal health of peripheral European countries.

?We expect rupee to trade in a range of 44?48 against the dollar, with a strengthening bias in a period of six months from now on subject to a monthly review depending upon the various global factors evolving from time to time,? Mecklai added.

According to provisional data from the Bombay Stock Exchange, so far in March, foreign institutional investors have been net buyers of Rs 5,000 crore.