Bond yields rise, rupee falls on outflow fears

MUMBAI: Bond yields continued to rise on Tuesday, as tightening cash conditions and rising inflation severely dented the market sentiment.

Yield on the 10-year benchmark bond rose to 8.31% during the day, before closing at 8.30%, two basis points above the Monday���s close. Meanwhile, the rupee fell further on the back of fears of outflows and a weakening stock market.

According to market participants, the mood is extremely bearish, with dealers unwilling to take up any new positions. ���All signals seem to be pointing towards some kind of monetary tightening from the Reserve Bank of India (RBI) and the market may have to get used to higher yields for some time,��� said a dealer with a private bank. With oil-prices soaring and cash conditions also tightening with corporates paying their advance taxes, yields are expected to rise further in the days to come.

Bond yields have been rising ever since last week���s fuel price hike. Inflation is expected to touch double digits soon, and nobody is ruling out monetary tightening by the central bank if such circumstances continue to prevail. However, there are mixed views on whether RBI will decide to hike cash reserve requirements or the repo rate ��� the rate at which banks borrow from RBI.

The rupee ended the day at 42.96/97 against the dollar, weakening further from the Monday���s close of 42.87/88. It had touched a low of 42.98 during the day. The weakening stock market has triggered off fears that foreign investors would start pulling out their dollars. Also, importers were seen buying dollars in anticipation of a weaker rupee in the days to come.