It has been an inauspicious start to the new financial year. In the first week itself, the yield of the benchmark 2015 7.38 per cent GOI bond spurt over 7 per cent mark to close at 7.02 per cent on Friday, gaining a whopping 34 basis points over previous week's close of 6.68 per cent. The yield was last seen at this high level in June 2002.
The bond market sentiment was weak on account of the first government security auction for the new financial year. The 6.85 per cent GOI 2012 totalling up to Rs 5,000 crore and 7.95 per cent GOI 2032 for Rs 3,000 crore were auctioned at yields of 6.80 per cent and 7.79 per cent, respectively. The auction was done through a price-based mechanism using multiple price auction method. The results were as per the market expectations.
The bond markets mood is edgy over the forthcoming second auction worth Rs 7,000 crore between April 19-26, 2005. It includes 10-14 year security for Rs 5,000 crore and 20-year and above security for Rs 2,000 crore.
On the inflation front, the news was positive. The latest wholesale price index inflation stood at 5.05 per cent for the year ended March 26, 2005, lower than the previous figure of 5.11 per cent for the 12 month ending March 19, 2005. The dip was mainly on account of high base effect and a fall in non-food articles that outnumbered the hike in prices of primary and manufactured goods.
International crude oil prices continued to be volatile. The week started on a weak note when the Brent Crude was quoted at US dollar 57.15 per barrel. The surge in oil prices was seen as a reaction to the report issued by investment bank Goldman Sachs's warning that prices could surge to US dollar 105 per barrel leading through a super spike in prices. However, later in the week oil prices eased a bit to close the week at the level of US dollar 54.49 per barrel on Friday.
The average volumes on the wholesale debt market during the week ending April 08, 2005, was at Rs 2,593.72 crore as against previous week's average of Rs 3,052.90 crore. At the repos/reverse repo auctions held on April 7, 2005, the RBI absorbed Rs 25,220 crore through 37 bids received at one-day reverse repo auction.
Call money rates remained more or less stable. The week opened at the level of 4.70-4.90 per cent to finally settle at 4.60-4.80 per cent on Friday. The cumulative borrowing and lending figures as on April 7, 2005, in the call money market stood at Rs 6,723.32 crore and Rs 6723.32 crore on a weighted average rate (WAR) of 4.78 per cent and 4.78 per cent, respectively.
Rupee too remained steady over the week. It ended at 43.76 after opening at 43.77 per US dollar on Monday.
Outlook
Bond markets are expected to take a breather. Yields might find a psychological support around the current 7 per cent levels. The markets will take any further direction after the second auction concludes. The postponement of expected hike in domestic fuel prices on the hopes of softening international crude oil prices can also bring some cheer back to the bond markets.
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