The Hindu Business Line : Bond prices fall by 40 paise

Mumbai, June 13 Bond prices tumbled by around 40 paise for the second consecutive day as domestic inflation soared to 8.75 per cent and triggered fears of another rate hike.

The 8.24 per cent-10 year-2018 benchmark paper opened at Rs 99.36 (8.33 per cent YTM) and plunged to an intra-day low of Rs 98.80 (8.40 per cent YTM). It, however, ended the day at Rs 99.04 (8.38 per cent YTM) against the previous close at Rs 99.44 (8.32 per cent YTM).

Bond dealers said there continued to be short-term pressure on yields as they feared domestic inflation could climb up to a double digit figure next week.

“The latest inflation numbers do not factor in the domestic fuel price hike. This leaves the door open for further rate hike action from the RBI,” said the treasury head at a private bank.

In the short term, traders expect the 10-year yield to touch 8.45 per cent, while in the medium term it could harden to 8.75 to 8.9 per cent.

Adding to the rate hike fears are the pressures on domestic liquidity. Advance tax outflows to the tune of Rs 20,000 crore-Rs 25,000 crore next week onwards will drain more cash from the system and keep rates firm, said a dealer.

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