Bond markets were nearly standstill. In the absence any triggers, bond yields took cue from every statement of the central bankers. The liquidity in the system seems to be comfortable if but not excessive. The post Rs 7000 crore auction saw a lethargic buying activity among participants as average weekly volumes at NSE-debt segment dropped to a low of Rs 3076 crore. Moreover call rates also inched up to a high of 5.85%, indicating little stretched liquidity. With deluge of dollar inflows, rupee firmed by whopping 16 paisa over the week.
The auction saw the 10-year benchmark firm up to 7.20% early during the week. In hope of a bank rate, the bond market is decodes optimistically any statement by the central bank. The signals remain affirmative from RBI. Besides the threat of US-attack on Iraq led to the 10-year benchmark easing by 5 bps. But RBI declining an immediate rate cut was put off. The 10-year benchmark moved up to 7.16%, the previous week level. The mid-tenure securities were largely inactive, the longer-tenure gilts went down by 10-20 paisa over the week.
Strong recovery signal was visible with 6.4% rise in Index of Industrial Production (IIP) in July 2002 as compared to 2.6% in July 2001. And a 5.7% growth in manufacturing sector supported by 9.7% rise in capital goods. On the contrary, the capital goods index has fell by 5.4% in July 2001. Even the bank credit – driven primarily by rise in non-food credit offtake has grown a robust 11.3% in the current fiscal against a mere 3.3% in last fiscal. Net-net economy is gaining health, defying rationale for an interest rate cut.
Outlook
The 10-year benchmark yield has tested the 7.12%-7.19% level since third week of August, reflects stability at current levels. The government-borrowing calendar for the remaining fiscal will be a market pointer. However, liquidity could be strained with advance tax payments.
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