Bonds trade weak; Rupee gains 7 p

MUMBAI: Government bonds ended weak, with yield on the 10-year benchmark bond once again threatening to touch the 7% mark, as traders sold securities ahead of a Rs 12,000-crore auction on Friday.

Despite RBI governor D Subbarao making it clear that a ���accommodative��� monetary stance would continue, traders continue to be nervous about the government���s record borrowing programme. The benchmark 10-year yield rose seven basis points to close at 6.90% on Thursday.

���Concerns of excess supply are weighing on the market,��� said Arvind Chari, fixed income portfolio manager at Quantum Mutual. ���However, any selloff is good in a way because fresh positions will then begin to come in. This could lead to a rally of sorts,��� he added.

While some dealers say there could be some devolvement at Friday���s auction, others point out that the underwriting commissions (paid to bond houses) are extremely low. This shows that the sentiment among traders is good, they add. The rupee ended at 48.35 against the dollar, just seven paisa stronger than its previous close, as a weaker dollar improved sentiment for the local unit.

Both the dollar and yen fell against most of the other majors, after a government report showed Japanese manufacturers boosted production for a fourth month, improving hopes of a steady recovery for the global economy. A report that showed UK house prices advancing for a third month also led a move towards non-greenback, Asian currencies.