Bond markets witnessed little action amid the festive season during the week ended November 04, 2005. The yield on the benchmark 7.38 per cent GOI 2015 bond inched up to end at 7.10 per cent, up one basis point from Friday's close of 7.09 per cent. The volumes remained thin as the traders remained on the sidelines during the festival season. It was a curtailed trading week since the bond markets were open only for three days.
The much-awaited announcement regarding the gilt auction came on Wednesday when the RBI declared that it will conduct the twin auction worth Rs 8,000 crore on November 8, 2005. The central bank will conduct the auction of 7.49 per cent 2017 bond worth Rs 5,000 crore and 7.4 per cent 2035 bond worth Rs 3,000 crore.
The gilt yields inched up on Monday as the traders awaited the announcement regarding the gilt auction. The series of blasts that rocked New Delhi on October 29, 2005 also contributed to the cautious sentiments of the market. The yield on the 7.38 per cent GOI 2015 bond added one basis point to end at 7.10 per cent. Thereafter, the yield on the benchmark bond remained flat throughout the week. Another increase in the fed rate to 4 per cent weighed upon the sentiments of the market on Tuesday. This increase has taken the fed rate to its four year high.
The inflation data surprised many. For the week ended October 22, 2005, the inflation stood at 4.49 per cent, down from previous week's 4.71 per cent. The decline came mainly on account of lower food and energy prices. However, a sharp decline in the rupee worried the market participants. The Indian currency weakened over the week to end at 45.41 per US dollar on Friday. The importers have been buying dollars as they expect the greenback to strengthen due to the rising interest rates.
Call rates surged to end at 5.90-6 per cent, as against last Friday's close of 5.30-5.50 per cent. Tight liquidity position amid outflows during the festival season and covering to make room for the upcoming twin auction contributed to the increase.
Outlook
Falling rupee and rebounding oil prices have spelt pessimism for the bond markets. Tight liquidity position will also put pressure upon the bonds. The markets are likely to remain subdued ahead of the twin auction as traders may prefer to stay on the sidelines. But the yields may take a direction on the basis of the auction results and the movement of rupee in the coming week.
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