The week ended March 11, 2005 brought some respite to bond markets. In the previous week, bond markets had nosedived after the Budget announcement. The yield on the benchmark 7.38 per cent 2015 bond slipped by eleven basis points to close at 6.55 per cent against previous week's close of 6.66 per cent.
The Finance Minister's remarks that the government borrowing in financial year 2005-06 would be less than budgeted acted as a catalyst for the market. The yield on the benchmark 7.38 per cent GOI bond closed as low as 6.53 per cent on Monday. While the bond markets remained closed on Tuesday, the market remained range-bound on subsequent days. The yield on the benchmark edged up two basis points on Wednesday. The trend continued on Thursday amid concerns over rising crude oil prices and a spike in the US treasury yields. However, the trend reversed on Friday when the yield slipped by two basis points to settle at 6.55 per cent for the week.
The volumes on the wholesale debt market remained low as suggested by the average volumes figure of Rs 2756.96 crore for the week.
Crude oil prices continue to be a cause for concern for the markets. The price of the Brent crude surged during the week to touch a high of $53.08 on Wednesday, before ending the week at $52.06. With OPEC showing no signs of enhancing oil production, no respite is expected.
A rise in the inflation figure for the week ended February 26, 2005 by 12 basis points had little impact on the market sentiments as the rise was less than expected. As per the data, the inflation for the week ended February 26 stood at 4.95 per cent, up from previous week's 4.83 per cent. The increase was on account of higher manufactured product and energy prices.
The rupee appreciated over the week as the dollar slipped against major currencies in the world. At the end of the week, the rupee closed at 43.56 against the US dollar, its lowest close since February 7, 2005 when it had touched 43.5. Call rates hovered between 4.60-4.80 per cent for the majority of the week.
Outlook
Though the markets seem to have recovered from the blues of the higher-than-expected borrowing plan of the government as announced in the Budget, oil prices still pose as a concern. The recent surge in crude oil is likely to put pressure on inflation in the coming weeks. The markets are expected to remain range-bound ahead of the OPEC meet on March 16.
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