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Bond Yields Close Flat

The yield on the benchmark 7.38 per cent GOI 2015 bond traded in a narrow range before closing at 7.02 per cent, down one basis point from last Friday's close

Bond markets remained range bound during the week ended September 16, 2005. The yield on the benchmark 7.38 per cent GOI 2015 bond traded in a narrow range before closing at 7.02 per cent, down one basis point from last Friday's close. The falling crude oil prices, which are now below $64 per barrel mark, have eased the pressure on the markets. However, inflation registered an unexpected rise, hurting the sentiments. Eleven state governments tapped the markets through the sale of 7.53 per cent SDL 2015 worth Rs 2,900 crore on September 13, 2005.

Bond markets started the week on a dull note on Monday as the yields remained flat amid thin trading volumes. Market participants refrained from taking huge positions, as they are awaiting the announcement of the government borrowing schedule for the remaining part of the current financial year. The markets posted marginal gains on the next three days, buoyed by ample liquidity and easing crude oil prices. The yield on 7.38 per cent GOI 2015 bond shed on basis point on each of the three days, to touch its weekly low of 7 per cent on Thursday. However, an unexpected rise in the inflation played a spoilsport as the yields inched up on Friday, shedding much of the gains made in the past three days.

For the week ended September 3, 2005, inflation stood at 3.16 per cent, up from previous week's 3.01 per cent. The rise comes after a consistent declining trend that lasted six weeks. Higher fuel prices, and costlier essential food and non-food items caused the inflation to rise, though the markets were not expecting it.

Rupee weakened marginally during the week. Dollar's strength against the major currencies continued to weigh heavily on the rupee. However, robust FII inflows and a decline in the oil prices helped the Indian currency to recover a bit before closing at 43.87 per US dollar on Friday.

Call rates remained steady in the range of 4.95-5.05 per cent for a major part of the week, before closing marginally lower at 4.80-5 per cent. The liquidity remained comfortable as the demand for funds was easily matched by supplies. However, the outflows on account of advance tax payments by the corporates may have an impact on the liquidity.

Outlook
With comfortable liquidity position and easing crude oil prices, bond markets look poised at the moment. However, much would depend upon the government borrowing schedule for the remaining part of the current fiscal, which will be announced shortly. Though no surprises are expected, but traders might refrain from taking huge position ahead of the announcement. Advance tax flows may also impact the liquidity in the coming days, though with the current liquidity position, it should not bother the markets much.