Bonds trading weak ahead of auction

MUMBAI: Government bonds were trading weak ahead of the Rs 15,000 crore bond auction on Friday. Dealers expect action to remain range-bound in the coming days till the budget, when they expect some clarity to emerge on the government���s borrowing programme. Meanwhile the feeling is slowly sinking in among traders that the days of policy easing may be fast getting over.

This is the fifth time in succession that the size of the scheduled auction has been hiked to Rs 15,000 crore from Rs 12,000 crore.

The yield on the 6.07% paper maturing in 2014, traded lower at 6.60% at 12 noon as against its 6.63% close on Monday. While this paper was up, many others traded in the red. The benchmark 6.05% paper of 10 year duration had trades of only Rs 15 crore and its yield was steady at 6.90%.

"Monetary tightening may kick in from second quarter of FY10. The RBI may lift the repo rate to 6% by second half of FY10, if growth is close to 7% and even higher if the growth or inflation surprise on the upside," said Ramya Suryanarayanan, an economist at DBS Bank.

The government will sell Rs 5,000 crore of the 6.49% bonds due 2015 and Rs 5,000 crore of the 6.35% notes due in 2020 at the auction. The auction will also include Rs 2,000 crore of the 7.50% notes maturing in 2034, the central bank said in addition to Rs 3,000 crore of new 15-year bonds.

The rupee's level of 47.76 against the dollar at 12 noon, is lowest since end-May, and was 4 paise weaker than its previous close. The dollar and the yen rose on Tuesday after weak data in the US made traders move towards perceived safer assets.