10-year bonds fell for a second day, driving yields to the highest in more than two weeks, as faster growth in industrial production heightened concerns the central bank will raise borrowing costs.The rupee also dropped 0.8% to 46.645 per dollar at the close.
The government said output at factories, utilities and mines rose 9.1% in September from a year earlier. Bonds also fell as some investors sold to raise funds for purchases at an auction of Rs 10,000 crore in securities scheduled for Friday.
?The immediate implication is that monetary policy will certainly be tightened and we only have to speculate when it will begin,? said S Srikumar, chief of fixed-income trading at Corporation Bank. ?Yields will be under pressure to rise in the short-term.?
The yield on the 6.9% note due July 2019 rose 2 bps, to 7.35% at the close.
The government will offer Rs 3,000 crore of notes due 2016 and Rs 4,000 crore of bonds maturing in 2019 at the auction, according to the finance ministry. It will also offer Rs 3,000 crore of notes due 2027 at the auction.
Call rate ended higher at 3.35% on the overnight call money market due to fresh demand from borrowing banks.
The call money rate finished higher at 3.35% as against 3.25% previously after moved in a range of 3.35% and 3%. The RBI under the liquidity adjustment facility mopped up Rs 1, 16,460 crore from 59 bids at the one day reverse repo auction at the rate of 3.25%.
Meanwhile, rupee fell the most in two weeks after U.S Treasury Secretary Timothy Geithner said a strong dollar is in his country?s best interest.