Bankers are expecting bond yields to rise next week, when the impact of advance tax outflows will be felt.
With corporate performances having been above market expectations in the last three quarters, analysts have estimated a higher tax outflow of Rs 35,000 crore to Rs 40, 000 crore. Saturday is the last day for payment of advance taxes.
Earlier, analysts had estimated the outflows to be in the range of Rs 30,000 crore to Rs 35,000 crore.
Monday onwards, the interbank overnight borrowing rates are seen firming from Friday’s closing level of 7.6% to 7.75-7.95%.
“The overnight rate, however is not expected to go beyond 8%, as repo funds are available with the central bank at that level,” said a senior official at a large state-owned bank.
Meanwhile, at the Reserve Bank of India’s 10-year bond auction on Friday, the cut-off yield at which bonds were accepted, was marginally higher by three basis points as against the secondary market rate of 7.92%.
The cut-off yield of similar maturing paper in secondary trades ended Friday at 7.89%, indicating some firmness in rates.
“We are entering into a phase where volumes could be low but rates will stay firm at the near end,” said a secondary market dealer at a brokerage.