Bond markets rallied as the bond surged during the first four days of the week ending November 25, 2005. However, they pared the gains made earlier in the week on the last day. The yield on the benchmark 7.38 per cent GOI 2015 bond ended at 7.09 per cent, same as last Friday's close. The RBI conducted the auction of 8.35 per cent 2022 bond worth Rs 5,000 crore on November 24, 2005. It set the cut-off price of Rs 108.65 at the auction, which was higher than market expectations.
Bond markets started off on a cautious note on Monday, as the weakness in the US treasuries weighed upon the sentiments. But subsequently, a series of positive news flows helped to perk the markets up. Firstly, improved liquidity helped the traders to set aside the concerns regarding the bond auction. Among other developments, state-run Employees' Provident Fund deferred the decision regarding interest rates for the year ending March 2006, which contributed to the positive sentiments. Also, Federal Reserve indicated that the increases in the Fed rate might come to an end in the near future. All this caused the yields to drop. The yield on the popularly traded 7.38 per cent GOI 2015 bond touched its weekly low of 7.05 per cent on Thursday. However, bonds reversed their rising trend on Friday to pare off the gains made during the week. Cash outflows towards the Rs 5,000 crore gilt auction weighed upon the markets. Some traders are believed to have started making room for the next auction to be held in the first week of December. An RBI report which stated that banks may lose heavily on their investment portfolios in case of an increase in interest rates, also worried the markets.
For the 12-month period ending November 12, 2005, inflation rose to 4.20 per cent, as against previous week's 4.14 per cent. An increase in the prices of minerals and non-food essential items contributed to the rise.
Rupee strengthened against the dollar mid-way during the week, amid strong FII inflows in the Indian markets. However, higher demand for the greenback from oil companies put pressure on the Indian currency as it ended weaker at 45.78 per US dollar.
Liquidity improved substantially, amid inflows due to redemption of t-bills and interest payments. As a result, call rates dropped significantly to 3-4 per cent by the end of the week, as against previous week's 6-6.10 per cent.
Outlook
Much of the concerns related to liquidity seem to be over for the time being. However, the market participants will look forward to any announcements regarding the twin auction worth Rs 8,000 crore to be held between December 1-8, 2005 for further cues. The markets may witness a cautious start to the next week as the traders may prefer to make some room for the forthcoming auction.
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