Bond yields to touch 7.80% in final quarter of FY13: Nomura

Strong bond demand and low supply in the current quarter coupled with expectations of monetary easing by the central bank in January are leading to rally in Indian bond market, Vivek Rajpal, rates strategist, Nomura India said in an interview to CNBC-TV18.

The government cancelled January 4 bond auction and no auction has been scheduled for January 11 as well. This would lead to no supply of bonds till January 18, which is pushing up prices.   Below is an edited transcript of Vivek Rajpal's interview on CNBC-TV18

Q: The trading volumes are all time high, there is expectation of a rate movement from the Reserve Bank of India (RBI). A lot of factors are contributing to what is happening, but do you see this kind of heavy volumes continuing for the near-term, what do you think about it at this point?

A: The momentum in the bond market will continue. Of course the pace may be slow from here but we have a target of 7.80 for the final quarter. One can assign two specific reasons for this rally.

One is, the supply/demand dynamics. The demand for bonds is strong and the supply is low in the current quarter. Second is the monetary easing expectation which is playing on the minds of market participants.

Q: What is your range for the 10-year yield, what kind of levels are you working over there?

A: We have a 7.80 target for the final quarter of this fiscal year.