Bond markets continued to gain for the third consecutive week ended May 27, 2005. Bond prices touched a high of Rs 103.40 during the week. However, due to profit booking the prices retreated back to Rs 103.10 on Friday. The yield on the benchmark 2015, 7.38 per cent GOI bond closed at 6.95 per cent, down eight basis points from its previous week's close of 7.03 per cent.
The week witnessed the closure of government auction worth Rs 4,000 crore on May 24. The auction received a good response. The cut-off prices declared by the RBI were higher than the expected.
Inflation figure also cheered the markets on Friday. It stood at 5.55 per cent for the year ended May 14, 2005, lower from the previous week's figure of 5.61 per cent. The fall was mainly on account of decrease in textile prices and last year's high base.
Volumes on the wholesale debt market increased towards the end of the week, averaging Rs 3139.63 crore, as against previous week's average of Rs 2,995.60 crore.
The declining trend of the international crude oil prices took a U-turn during the week on account of supply side related concerns due to a steep fall in US crude inventories. The Brent crude futures, traded on the London's International Petroleum Exchange, closed at 50.50 US dollar per barrel on May 27, up by almost 260 cents over its previous week's close of 48.10 US dollar per barrel.
Rupee traded in a narrow range during the week, finally closing a bit weak at 43.52 per US dollar on May 27, down by two paise from its previous week's close of 43.50 per US dollar. Strong demand for dollar from oil importers and greenback's strength overseas continued to weigh heavy on the Rupee. US dollar was trading near its seventh month high against Euro. Also during the week, the RBI ordered a switch in benchmarks from the earlier used MIFOR to a domestic Rupee benchmark in six months time.
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 4.90-5.10 per cent on May 27, slightly lower than previous week's close of 4.95-5.10 per cent.
The cumulative borrowing and lending figures as on May 27 in the call money market stood at Rs 897.38 crore and Rs 897.38 crore on a weighted average rate (WAR) of 4.93 per cent and 4.93 per cent, respectively.
At the repos/reverse repo auctions held on May 27, 2005, the RBI absorbed Rs 33,120 crore through 54 bids received at three-day reverse repo auction. It maintained the cut-off rate at 5 per cent.
Outlook
Bond markets sentiments may weaken on account of the fresh government issuance worth Rs 10,000 crore beginning June 1, 2005. Also, the recent rebound in international crude oil prices and the expected hike in domestic fuel prices can affect the markets. However, the falling trend in inflation can provide a much needed comfort factor to the traders.
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