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Modest Gains

Comfortable cash supplies and a possible softening stance of RBI, led to a modest recovery in the government bond yields

By Monday, June 25, the 10 year benchmark 7.49 per cent GOI bond fell by four basis points. Ample liquidity, kept the mood upbeat. However, over the next two days the bond market gave up these initial gains, fearing a crunch in liquidity.

But on Thursday comments made by a finance ministry official ruled out any unscheduled market borrowing by the government. He also stated that there was no immediate proposal to raise the issue limit for market stabilisation bonds. On Friday the mood remained upbeat, further a much lower than expected inflation at 4.03 per cent for mid June alleviated fears of another round of monetary tightening measures. The yield on the 10 year benchmark 7.49 per cent GOI bond settled at 8.18 per cent on Friday, June 29.

Call rates also stabilized to a more comfortable range of 6-6.25 per cent on Friday, after touching 8 per cent levels mid week. After trading hours, the government announced an auction of Rs10000 scheduled on July 6.

In the near term there continues to remain uncertainty in interest rate movements. The trading fraternity remains divided on a possible softening of the central bank's strict stance on liquidity. A liquidity crunch could exert an upward pressure on bond yields. Further continuing rise in oil prices has become worrisome. The market is likely to look at global cues and movement in US treasuries for the forthcoming week.