The indicative spread over the 10-year treasury has shown that the spread has gone up marginally by 25 basis points between August 14 and August 31.

The spread of China 7.75 per cent 2006 has lost about 150 basis points.

On the domestic economic scenario, the update has said that despite the comfortable situation where the inflow is pegged at Rs 32,173 crore and outflow at Rs 28,355 crore, September is unlikely to see a sustained rally as normal borrowing would be supplemented by advance tax outflows and a possible SDL issue. The inflows on account of Resurgent India Bonds do provide some relief, but an auction of long maturity securities would result in yields tightening further at the longend, the report stated.

The net borrowing programme has been completed to the extent of Rs 36,891 crore against a budgeted Rs 48,326 crore, the report stated.

The yield curve in the money market had moved up sharply in the short to medium maturities after the Reserve Bank of India announcements on CRR and repo rate hike. However, with liquidity better than anticipated and call rates stabilising near 9 per cent, yields have eased back to the levels seen a fortnight ago.

With repo rate at 8 per cent, near-term rates are unlikely to ease further. The curve is steep up to three year maturity and the maximum upside potential appears to be in the two to three year segment.

Trading in the longer end has been sparse and any auction announcement in this segment is likely to result in tightening of yields, the report stated.