Indian bonds continued to slide during the week ended July 14, 2006. The 10-year yield surged to 8.34 per cent, up 12 basis points from its last week's close. Bond auction worth Rs 7,000 crore and higher oil prices were among the primary reasons for the subdued sentiments. A hike in interest rates by Bank of Japan also had an impact on the markets.
The RBI conducted the auction of 7.59 per cent 2016 bond worth Rs 5,000 crore and 7.50 per cent 2034 bond worth Rs 2,000 crore on July 11, 2006. The cut-off yield for the two bonds was set at 8.29 per cent and 8.75 per cent respectively.
The markets remained weak on Monday as the traders remained on the sidelines ahead of the twin auction to be held the next day. But the auction results were not very encouraging. The traders lacked interest and a sizeable part of the auction had to be underwritten by the primary dealers. The markets remained weak on Wednesday as well in the wake of Mumbai blasts. Rising oil prices, which crossed $78 per barrel did not help either and the yield on the benchmark 7.59 per cent GOI 2016 bond ended the week at 8.34 per cent.
For the 12-month period ending July 1, 2006, inflation stood at 4.96 per cent. Though it rose from previous week's 4.84 per cent, but it was lower than the market expectations. Costlier textiles and paper products contributed to the rise, while the prices of the food articles registered a minor decline.
Rupee weakened over the week to end at 46.43 per US dollar. It opened the week on a strong note, but high dollar demand pushed the Indian currency in the negative territory. Higher oil prices also had a negative impact on rupee. Liquidity position was comfortable and the call rates remained in the range of 5.75-5.85 per cent throughout the week.
Going forward, the traders will now be eyeing the forthcoming gilt auction. As per the calendar, the RBI is scheduled to auction a 15-19 year security worth Rs 5,000 crore between July 17 and 25, 2006.