Bond markets continued to lose during the week ending September 30, 2005. After a volatile week, the yield on the benchmark 7.38 per cent GOI 2015 bond ended at 7.11 per cent, up five basis points from last Friday's close of 7.06 per cent.
Bond markets had an auspicious start to the week on Monday as fall in the crude oil prices helped the yields to edge down. But the traders were in for a surprise the very next day. The comments of a monetary policy adviser that the Federal Reserve's moves in the short run could not be ignored, were seen as indications of a rate hike in the forthcoming policy review. The yield on 7.38 per cent GOI 2015 bond surged by five basis points to touch 7.09 per cent. However, ample liquidity supported the markets well, as yields edged down again on Wednesday. The recovery was short-lived as bond markets lost on the last two days of the week. Trading volumes remained thin on Thursday because of a nation-wide strike of bank employees. Moreover, the data released indicated rapid economic growth during April-June, 2005. GDP grew by 8.1 per cent during the period. This has raised concerns that the central bank may raise interest rates in the forthcoming policy review, putting further pressure on the yields.
For the week ended September 17, 2005, inflation stood at 3.75 per cent, higher than previous week's 3.53 per cent. An increase in the prices of manufactured product and minerals contributed to the rise. However, it was lower than market expectations.
Rupee lost ground against the US dollar during the week. The Indian currency breached 44 per US dollar mark on Tuesday, amid dollar's strength against euro. Since then, rupee posted marginal gains as the dollar remained weak against Japanese yen. There was no trading in foreign exchange markets on Friday as the banks remained shut for the half-yearly account closing.
Call rates remained steady in the range of 5-5.20 per cent throughout the week. As on September 28, 2005, the cumulative borrowing and lending figures in the call money market stood at Rs 969.76 crore and Rs 969.76 crore on a weighted average rate of 5.11 per cent and 5.11 per cent respectively.
Outlook
With the heightened expectations of a rate hike in the forthcoming policy review, markets are expected to tread cautiously. Traders will avoid taking huge positions at the start of the week and look for further cues as the week unfolds. Meanwhile, the twin auctions worth Rs 9,000 crore scheduled between October 4-11, 2005 may also put some pressure on the liquidity in the system. This will be the first in a series of auctions scheduled for the second half of the current fiscal.
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