10-year benchmark expected to stay range bound

Long-term rates are likely to remain range bound in the short term. The 10-year benchmark is likely to remain around these levels for some time and is likely to be supported by OMOs over the next couple of weeks. The two main events of the week are RBI’s OMO release of Rs 12,000 crore and government auction of around Rs 11,000 crore. These two events are expected to guide markets for most of the week.

Inflation data release, which will come in the middle of the week, and buying by retirals that usually takes place in the first half of the month because of moneys received by EPFO, pension funds, etc, will be the other two flows that will influence the market.

RBI continues to balance inflation against growth as is evident from the recent action and comments of the central bank. It is the start of the new fortnight, and therefore, call markets should remain easy. Quarter end government spending is expected to keep liquidity in check. However, the system remains significantly short, and therefore, call market is likely to align to the upper end of the LAF corridor.

(By Chaitanya Pande, CO Head- Fixed Income, ICICI Prudential AMC)