After trading in a range last week, yields on benchmark 10 year bond, 7.80% 2020 bond steadily rose 9 bps for the week to close at 7.61% for the week. Surge in yields was driven by tight liquidity conditions.

On all days of the week, we saw Repo window being active. Daily average of the combined amounts on 1st and 2nd window of Repo stood at Rs 60,311 cr for the week compared to Rs11,800 cr for last week. Tight liquidity conditions are driven by the advance tax payment by corporate.

Concerns of higher inflation have also kept the yields on a higher side. Some media reports cited a Govt official expecting inflation to cross 10% mark for the month of May. Good IIP numbers also added to the pressure.

Govt borrowing is progressing in a phased manner. After Friday’s auction, borrowing worth Rs 125,000 cr has been completed amounting to 27% of the total borrowing. Borrowings amid tight liquidity conditions have kept the yields at elevated levels.

For next week inflation (WPI) will be the most watched factor and a high inflation will lead to a surge in yields.

Author name:Praveen Bajaj

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