Government auction, Fed rate hike and expectation of a higher inflation figure kept the bond market volatile throughout the week ended May 6, 2005.
The yield on the benchmark 2015, 7.38 per cent GOI bond ended at 7.24 per cent after touching an intra-week high of 7.37 per cent on April 30, 2005.
The week witnessed auction of government's fresh issuance worth Rs 8,000 crore. The auction began on May 3, 2005. The Reserve Bank of India set a cut-off price of Rs 102.33 at the auction of the reissued 7.55 per cent bond maturing in 2010, at 6.99 per cent yield (YTM). On the 7.50 per cent 2034 bond, the cut-off price was set at Rs 94.58 with 7.97 per cent yield (YTM).
Other important development of the week included Fed rate hike. The US Federal Reserve raised the Fed fund rates by 25 bps to 3 per cent on May 3, 2005. This was the eighth successive increase in the rates after June 2004.
Domestic inflation figure was announced on Friday. It stood at 5.91 per cent for the week ended April 23, 2005, up from the previous week's figure of 5.64 per cent. The hike was mainly on account of increase in prices of essential food articles, manufactured products and energy.
Volume on the wholesale debt market was stable during the week. It was an average Rs 2751.12 crore, as against previous week's Rs 2,652.46 crore.
Global crude oil futures continued their last week's declining trend this week as well. The Brent crude futures fell 138 cents to end at 50.77 US dollar per barrel on Friday, as against its previous week's close of 52.15 US dollar per barrel.
Rupee strengthened against US dollar. It closed at 43.42 per US dollar on May 6, 2005, gaining over 10 paise from the last week's close of 43.52 per US dollar. This continued rise in Rupee comes on the back of the likely revaluation of Chinese Yuan against US dollar and easing international crude oil prices.
On the liquidity front, the call money rates remained more or less stable during the week. The call rates recovered from the April 29, 2005, dip of 3.00-4.00 per cent and closed the week at 4.85-5.05 per cent.
At the repos/reverse repo auctions held on May 6, 2005, the RBI absorbed Rs 27,010 crore through 42 bids received at the three-day reverse repo auction. It maintained the cut-off rate at 5 per cent. At the one-day repo auction, the RBI did not receive any bid.
Outlook
The bond market is likely to remain range-bound in days to come. Results of the ongoing auction that is scheduled to end on May 9, 2005, will play a pivotal role in deciding the direction of the market. Concerns over rising inflation and the anticipation of state governments' debt issuance would exert further pressure on the bond prices. However, easing international crude oil prices can offer some support.
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