Bonds to stay under pressure, traders await WPI numbers

Bonds prices will remain under pressure due to higher than expected IIP numbers. Yields may rise further before the monthly inflation data due on Monday. The sentiment will be negative because of uncertainties over next year’s market borrowing, possibility of fuel price hikes and better than expected IIP numbers.

Even if net government borrowings for 2010-11 remain similar to the current fiscal year, the RBI will not be able to use liquidity infusion steps to the extent it did in FY10. The sharp rise in IIP numbers and galloping rise in inflation will reignite the fears of harsh monetary action from the RBI. We see 10-year G-Sec trading between 7.90% and 8% in the coming weeks with low trading volumes.

(Head – Fixed Income Almondz Global Securities Ltd)