10-year government bond seen trading at 7.35%-7.60%

As the government borrowing programme is almost through with only one scheduled auction left for this fiscal, we expect the bond markets to see good buying interest. In case there is only a CRR hike in the RBI Credit Policy, we may see the 10-year bonds rallying and trade in the range of 7.20%-7.30% by the mid of next month.

That is if the global macro rate environment also remains supportive towards softer rates. With the expansion of banks’ balance sheets seen due to credit offtake in recent months, we may also see enhanced demand for government securities.

Important factors to watch for in Credit Policy is the posturing by RBI to tackle both inflation and growth. Meanwhile, the government bond market is also likely to take a clue from the central bank’s policy and is expected to remain fairly stable till then.

(Ashish Vaidya, Head-FICC Trading UBS AG)