On Monday a sharp decline in crude oil prices brought cheer to the markets and the yield on the 10 - year benchmark 7.99 per cent GOI 2017 bond dropped by two basis points. However owing to tight cash supplies in the system, gains were capped. While the liquidity condition showed some signs of easing on Tuesday, the possibility of more bond supplies offset this positive development, and yields closed unchanged. Throughout the week, speculation on the US Fed rate cut was also kept in check due to the tight cash conditions in the market. As a result the market remained range bound. Such a rate cut would lead to acceleration in foreign fund inflows, owing to the differential in yields which are much higher in India. This in turn would bring the RBI under pressure to similarly revise its key lending rates, thereby leading to a sharp rally in domestic bonds.
Call rates traded in the region of 6.50 per cent to 7.75 per cent. On Friday the call rate dropped to 4.25-4.5 per cent, with a dip in borrowings as it was reporting day for banks to report their cash balances to the central bank. Lower-than-expected inflation at 3.01 per cent as on November 24 also helped sentiment. The yield on the 10-year benchmark 7.99 per cent GOI 2017 bond finally closed three basis points lower than its previous close.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Outlook
While the markets are all geared up for the US Federal Reserve's meeting on Tuesday, December 11, liquidity condition is likely to remain tight. Advance corporate tax payments will add to the crunch as well. The announcement of Rs 7,000 crore auction of dated securities on Friday, will not be received well by traders, as they were gunning for a possible cancellation of the auction. Nevertheless, a cut in key lending rates of the US Fed Reserve will provide cues to the market and spark off speculation of a cut in RBI's key lending rates. If the Fed rate translates into accelerated fund inflows, the liquidity condition will also ease, in which case there could be a significant rally.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
