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Bonds Range Bound

Bond markets opened on upbeat note with prices rising to seven-month highs. The market sentiment is likely to remain cautious ahead of gilt auction

The week for the bond market opened on an upbeat note with prices rising to seven-month highs. The benchmark 7.59 per cent GOI 2016 yield fell to 7.38 per cent, its lowest since May, only to rise to 7.43 per cent by the weekend on December 1, 2006.

The benchmark bond yields remained steady through Monday to Wednesday at 7.38 per cent only to rise on Thursday, with data revealing a 9.2 per cent growth in the economy for the September quarter, surpassing all forecasts. This in turn raised worries of the central bank raising interest rates in its January policy review, owing to rising price pressures. The much-awaited price cut of petrol and diesel on November 30 failed to bolster sentiments. On December 1, traders remained cautious expecting an announcement of fresh sale of bonds. However this came only after market hours when the government stuck to its borrowing calendar by announcing the sale of two bonds worth Rs 9,000 crore on December 8, 2006.

The yield on the popularly-traded 8.07 per cent GOI 2017 also remained steady through the week settling at 7.42 per cent.

Inflation rose to 5.45 per cent for week ended November 18, lower than the market forecasts. The central bank sees inflation in the 5.0-5.5 per cent range for the current fiscal year.

Liquidity did not pose to be a deterrent to the market with call rates remaining steady during the week between 6.10 per cent and 6.20 per cent.

The rupee held its own during the week owing to dollar weakness against the pound and capital inflows. However, its gain was stemmed with the rising crude prices during the week. It ended the week at 44.67 per dollar.

The market sentiment is likely to remain cautious ahead of the gilt auction in the coming week. Expectations of an increase in interest rates in the January policy review, which would make it the fourth revision this financial year, may also weigh upon the sentiments. But the reduction in the prices of diesel and petrol is likely to have a positive impact on inflation figures, thereby encouraging the market participants.