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Bond Markets Extend Gains

Easing crude oil prices and a low inflation figure helped bond markets end the week on a positive note. The benchmark yield closed down 14 basis points at 7.03 per cent

The bond markets extended gains for the second consecutive week ended May 20, 2005. Easing international crude oil prices and a significant fall in inflation declared on Friday boosted the sentiments.

The yield on the benchmark 2015, 7.38 per cent GOI bond closed at 7.03 per cent for the week, down 14 basis points from its previous week's close of 7.17 per cent.

Major events of the week included the Central government issuance worth Rs 4,000 crore on Monday and the State Development Loan issuance worth Rs 7,300 crore with a green shoe option of 10 per cent of the target amount the next day.

For the on-tap sale of 7.77 per cent, 10-year state development loan, the Reserve Bank of India (RBI) received applications for an aggregate amount of Rs 23,051 crore of which subscriptions for an aggregate amount of Rs 7,554 crore were retained.

Inflation figure also cheered the market on Friday. It stood at 5.61 per cent for the year ended May 07, 2005, lower from the previous week's figure of 5.67 per cent. The fall was mainly on account of decrease in prices of essential food articles and manufactured products.

Volumes on the wholesale debt market increased towards the end of the week, averaging Rs 2,995.60 crore, as against previous week's average of Rs 3,296.38 crore.

The Brent crude futures, traded on the London's International Petroleum Exchange, closed at 48.10 US dollar per barrel on May 20, down by almost 67 cents over its previous week's close of 48.77 US dollar per barrel.

Rupee weakened over the week to close at 43.50 per US dollar on May 20, down eight paise from its previous week's close of 43.42 per US dollar. Strong demand for dollar from oil-importers and greenback's strength overseas continued to weigh heavy on the Rupee.

On the liquidity front, the call money rates remained more or less stable. The call rates ended the week on a firm note, closing at 4.95-5.10 per cent on May 20, slightly higher than previous week's close of 4.90-5.10 per cent.

At the repos/reverse repo auctions held on May 20, 2005, the RBI absorbed Rs 14,285 crore through 32 bids received at four-day reverse repo auction. It maintained the cut-off rate at 5 per cent.

Outlook

Bond markets are likely to remain bullish over the coming few weeks. Falling international crude oil prices and domestic inflation will keep the mood upbeat. However, the scheduled hike in domestic fuel prices in the week ahead can act as spoilsport. The results of the ongoing auction that is scheduled to end on May 24, 2005, will be key in deciding the further direction of the market.