Bonds fall for second week, Re slips to 44.33/$

Bonds declined for a second week on speculation that record debt sales by the government are eroding demand for existing securities as inflation gathers pace.

Bonds declined for a second week on speculation that record debt sales by the government are eroding demand for existing securities as inflation gathers pace. The yield on the benchmark 10-year note rose to the highest level since October 2008 after a report showed inflation held at a 17-month high. The data heightened concern that RBI will raise borrowing costs for a second time this year on April 20.

The yield on the 6.35% note due January 2020 increased 7 basis points, or 0.07 percentage point, this week to 8.08% at the close of trade on Friday. It reached 8.13% on Thursday, the highest level since October 3, 2008. The price fell 0.42, or 42 paise per Rs 100 face amount, to 88.50. “The supply pressure is persistent at a time when there are no indications of inflation subsiding anytime soon,” said Pradeep Madhav, managing director of Mumbai-based Securities Trading Corp of India. “So, pressure on bond yields is inevitable. Going by the undertone, the rise in yields may only accelerate.”

The government plans to borrow a record Rs 4.57 lakh crore ($103 billion) in the 12 months that began April 1, compared with Rs 4.51 lakh crore in the last fiscal.

The rupee completed its first weekly loss in a month on speculation that RBI will curb currency appreciation that erodes export earnings. The currency declined 0.1% this week to 44.3275. It reached 44.1650 on Thursday, the highest level since September 8, 2008.

Offshore contracts indicate bets the rupee will decline to 44.37 to the dollar in a month, compared with expectations of 44.29 at the end of last week.