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Auction Cheers Bond Market

A series of good news greeted the bond market in the week ended February 11, 2005. The popularly traded 7.38 per cent 2015 government bond fell by 26 basis points

A series of good news greeted the Indian bond market in the week ended February 11, 2005. Encouraging response to the auction of long-dated bond carried out by the RBI on Monday at bullish cut-off price escalated the underlying buying interest and propelled yields. Expectation that domestic inflation would continue its declining trend also boosted market sentiments throughout the week. And when the government came out with the inflation figure, which fell to an eight-month low of 5.25 per cent, bond market reacted positively.

On Tuesday, the fall in international crude prices to nearly $ 45 per barrel cheered the market. Bonds edged up on Thursday on account of fall in US treasury yields and the trend continued on Friday as well. The average daily volumes in the wholesale debt market remained above 4,000 mark, much better than the previous week.

The debt market was comfortable on the liquidity front. Call rates hovered between 4.6 and 4.85 per cent. The Indian government plans to issue treasury bills for 255 billion rupees under the market stabilisation scheme. But these funds will be held in an account maintained by the Central Bank. The scheme is aimed at helping the Central Bank manage excess rupee funds generated by its intervention in the currency market.

The popularly traded 7.38 per cent 2015 government bond went down by 26 basis points over the week to close at 6.45 per cent on Friday.

Except on Monday, rupee had a downward momentum. It touched a two-week closing low, weighed down by heavy dollar purchases resorted to by the public sector banks. Rupee shed 1.2 per cent from last week's five-year high of 43.30 per dollar when rating agency Standard & Poor had raised India's foreign currency rating.

Outlook
Encouraging inflation outlook and falling global crude oil prices are likely to provide strength to the Indian bond market. But the party may not last long as uncertainties surround the market. Forthcoming Union Budget would be crucial and is likely to give a direction to the market.