The bond markets recovered a bit during the week ended July 22, 2005, on the back of improved sentiments. The most important development of the week was China revaluing its currency -yuan, leading to a surge in the rupee. The Reserve Bank of India conducted the auction of 10.25 per cent GOI 2021 bonds. Inflation for the week ended July 9, 2005 increased to 4.14 per cent.
The bond markets started the week on a positive note. The RBI set a cut-off price of Rs 122 at the auction of 10.25 per cent GOI 2021 bonds worth Rs 5,000 crore. The auction was over-subscribed by 159 per cent. Better than expected auction results propelled buying interest among the market participants. For the next two days, the markets remained dull as traders preferred to stay on the sidelines ahead of the credit policy review. On Thursday, the announcement of yuan revaluation propelled the rupee to its six-year high. Taking cues, bond markets also made some gains. On Friday, the markets remained weak, amid a rise in inflation and a decline in the rupee following RBI's intervention. By the end of the week, the yield on the benchmark 2015 GOI 7.38 per cent stood at 7.16 per cent, down one basis point from its previous Friday's close of 7.17 per cent.
Inflation for the week ended July 9, 2005 rose to 4.14 per cent, higher than previous week's 4.09 per cent. Higher prices of primary articles led to the rise. Crude oil prices did not worry traders during the week, as they maintained their declining trend throughout the week. Fears of supplies getting hit as a result of storms disrupting refineries in the Gulf of Mexico subsided.
The rupee remained in the thick of action, following the yuan revaluation. China revalued the yuan by 2.1 per cent on Thursday, and it was announced that it will no longer be pegged to the dollar. After the announcement, the rupee gained strength, as it made a new six-year high of 43.11 per US dollar. However, the RBI intervened to restrict the strengthening Indian currency on Friday. As a result, the rupee shed much of the gains made earlier to end at 43.48 per US dollar.
Call rates remained steady within the range of 4.90-5.10 per cent throughout the week, before dipping sharply to 3.90-4.10 per cent on Friday. The liquidity remained comfortable during the week, as supply of funds easily matched demand.
Outlook
Bond market participants will eagerly await the credit policy review, which will put an end to the speculation over interest rates. The review is scheduled for July 26, 2005. Before that, the markets are likely to remain dull, as traders would prefer to stay on the sidelines. With no auction scheduled for the coming week, liquidity is expected to remain comfortable.
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