Bonded Bonds

The yield on the benchmark closed at 7.44%, unchanged since last Friday. RBI issued the first ever calendar for issuance of government securities. With the more leisure pace of borrowing indicated therein, bonds could be in for a brief rally.


In a short week, bonds remained unmoved. Prices rose marginally at the medium to short-end of the market after RBI issued the first ever calendar for issuance of government securities. But, it was dragged down by profit booking as large participants, mainly the banks were unwilling to hold position ahead of the financial year-end. The yield on the 10-year benchmark (11.03%, 2012) closed at 7.44 per cent on Thursday, unchanged since last Friday.

The call rates rose sharply to touch an intra-day high of 15 per cent on Thursday, with higher demand for funds to square reserve requirement ahead of the financial year-end. However, after the RBI's reverse repo auctions, call rates closed at 6.5-7.0 per cent range.

The RBI has increased the notified amount for the auction of 364-day treasury bills from Rs 750 crore to Rs 1,000 crore for the fiscal year 2002-03. This means that the government will increasingly rely on these for meeting its borrowing program. It is likely to increase liquidity for this instrument in the market and can serve as a more effective benchmark for pricing 1-year paper.

The rupee touched a new low of 48.80 to a dollar on Wednesday, before closing at 48.795 to a dollar on Thursday. Though there were dollar supplies on account of year-end conversion of export receipts, nationalized banks continued buying dollar on behalf of the RBI. In the calendar year 2002, the rupee has lost 53 paisa against the dollar. India's forex reserve rose to 53.317 billion in the week ended March 22, 2002 as against 52.189 billion last week.

The RBI rolled out its first indicative calendar for issuance of marketable dated government securities for the first half of the fiscal year 2002-03. RBI will issue Rs 68,000 crore worth of securities during the period as per the calendar. This works out to around 47.6 per cent of the government's gross market borrowing of around Rs 1,43,000 crore for the whole year. In April, RBI will issue a total of Rs 13,000 crore worth of securities.

The week, commercial banks slashed their rates too. First to act was the State Bank, which reduced the prime-lending rate by 50 basis points. It also reduced the deposit rates across all maturity by 25 basis points. Following this, Canara Bank and Bank of Baroda have reduced their deposit rates but left their lending rates unchanged.

The latest economic data also indicated symptoms of revival of the Indian economy. According to data from the Central Statistical Organization, GDP grew by 6.3 per cent in the third quarter (Oct-Dec '00) of the financial year as compared to 3.4 per cent in the corresponding period last year. Agricultural sector emerged as the best performing sector for the quarter, which grew by 7.1 per cent after shrinking 0.8 per cent last year. Manufacturing sector's performance remained gloomy and logged 2.8 per cent growth compared to 7.1 per cent a year ago.

Outlook
RBI will issue 7,000 crore worth of government securities in the coming week Rs 4,000 crore worth of 10-year papers and Rs 3,000 crore worth of short-term papers (less than 10-year). With the more leisure pace of borrowing indicated in the calendar in line with market expectations, bonds could be in for a brief rally.

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