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Cheap Oil Lifts Sentiments

The benchmark 2015, 7.38 per cent GOI bond yield closes at 7.17 per cent for the week ended May 13, 2005, down seven basis points from its previous week's close of 7.24 per cent

The sentiment in the bond market improved amid easing international crude oil prices and a significant fall in inflation declared on Friday.

The yield on the benchmark 2015 7.38 per cent GOI bond closed at 7.17 per cent for the week ended May 13, 2005, down seven basis points from its previous week's close of 7.24 per cent.

Bond markets weakened when the RBI announced the schedule for state government's fresh debt issuance. A total of Rs 7,300 crore is to be raised under the head of State Development Loans by the issue of 7.77 per cent bonds with a 10 year maturity, beginning May 17, 2005. All states excluding Punjab and Chhatisgarh would be participating in the auction.

Domestic wholesale price index inflation figure was announced on Friday. It stood at 5.67 per cent for the week ended April 30, 2005, lower from the previous week's figure of 5.91 per cent. The fall was mainly on account of decrease in prices of essential food articles.

Volumes on the wholesale debt market were stable during the week, averaging Rs 3296.38 crore, as against previous week's Rs 2751.12 crore.

The decline in the international crude oil prices provided the much needed support to the bond markets during the week. The fall in the oil price comes on the back of rising US crude inventories and a slowdown in the Chinese demand for oil. U.S. crude inventories have been rising for the past three months and are currently at their highest level in three years. The Brent crude futures, traded on the London's International Petroleum Exchange, closed at US dollar 48.77 per barrel on May 13, down by almost 2 dollars over their previous week's close of US dollar 50.77 per barrel.

Rupee made some volatile movements during the week as it touched its five and a half year closing high of 43.29 per US dollar on May 11, 2005. This jump in Rupee comes amid reports of Chinese Yuan's revaluation and the lack of any RBI intervention during the week. However, on a week on week basis, the Rupee closed flat at 43.42 per US dollar on May 13, 2005 equal to its previous week's close.

On the liquidity front, the call money rates remained more or less stable during the week. The call rates ended the week on a firm note, closing at 4.90-5.10 per cent on May 13, slightly higher than previous week's close of 4.85-5.05 per cent.

The cumulative borrowing and lending figures in the call money market stood at Rs 1,608.54 crore and Rs 1608.54 crore on a weighted average rate (WAR) of 5.01 per cent and 5.01 per cent respectively on May 13.

Outlook

The bond markets are likely to shed some of the gains and move into the weaker territory, as the state auction of bonds worth Rs 7,300 crore begins on May 17. Also, the Central Government auction worth Rs. 4,000 crore is scheduled to start on May 16, 2005. However, softening crude oil prices can offer some respite in the coming week.