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Bonds Recover Marginally

The yield on the benchmark 7.38 per cent GOI 2015 bond eased by three basis points to end the week at 7.09 per cent, as against previous week's 7.12 per cent

Bond markets recovered marginally during the week ended November 18, 2005. The yield on the benchmark 7.38 per cent GOI 2015 bond eased by three basis points to end the week at 7.09 per cent, as against previous week's 7.12 per cent. There was little activity during the week as the traders waited for an announcement regarding the gilt auction worth Rs 5,000 crore to be held between November 16 and 24, 2005.

Indian bonds started off the week on a positive note as the positive sentiments got a boost from the receding crude oil prices. The yield on the popularly traded 7.38 per cent GOI 2015 bond shed two basis points to end at 7.10 per cent on Monday. It was a curtailed trading week as the markets remained closed on Tuesday on account of Guru Nanak Jayanti. Thereafter, the market remained range bound. For each of the remaining three days of the week, the gilts made some gains in the early trades, amid falling crude oil prices and a drop in the US treasury yields. However, the gains pared off towards the end of the trading session over concerns regarding tight liquidity and the forthcoming gilt auction. Traders had been hoping for the cancellation of the gilt auction, but Finance Minister's comments on Friday that the government will go ahead with its scheduled borrowing raised concerns.

Inflation dropped to 4.14 per cent for the 12-month period ending November 5, 2005, as against previous week's 4.75 per cent. A fall in the metal prices contributed to the drop. Although the decline was more than market expectations, but it failed to have a major impact on the sentiments.

Call rates eased off during the week. The rates dropped from 6.80-7 per cent on last Friday to 6.30-6.40 per cent on Monday. The RBI also infused funds in the system through the repo auction. By the end of the week, the call rates were in the range of 6-6.10 per cent.

Outlook
After the Finance Minister's comments that the government will go ahead with the gilt auction, the bond markets are likely to remain weaker in the initial part of the week as the liquidity concerns are still not over. However, traders will derive some comfort from the receding crude oil prices. The bond markets will further take direction after the announcement regarding the auction is made.