The mood throughout the week was governed by the scheduled auctions worth 90 billion rupees on Friday, December 8.
The yield on the benchmark 10-year, GOI 2016 7.59 per cent bond eased to 7.38 per cent on Monday, from Friday's close of 7.43 per cent. This was primarily due to the increase in prices of U.S treasury debt, as the yields dipped to 10 month lows. Moreover, Federal Reserve is expected to lower interest rates in early 2007.
Subsequently, prices remained flat for the remainder of the week. The yield on the benchmark 10-year, GOI 2016 7.59 per cent bond remained unchanged till Wednesday, when it rose to 7.39 per cent. The yields remained steady on Friday, with lower than expected inflation. The gilt auction witnessed good demand, with bids for both the 2104 and 2036 bonds coming in at more than double the offer size.
The popularly traded GOI 2017 8.07 per cent bond also remained flat, with yields ending two basis points lower than last week.
After the close of trading hours on Friday, the RBI announced a 25 basis point hike in CRR (cash reserve ratio) to 5.5 per cent. The move is expected to suck Rs 13,500 crore worth of surplus funds out of the banking system.
Call rates dropped to 6.05- 6.15 per cent mid week from the earlier range of 6.10 - 6.20 per cent, amid adequate liquidity in the system.
Outlook
Markets may remain weak at the start of the next week due to a sudden hike in CRR. Traders are likely to remain cautious due to liquidity concerns. Liquidity could further come under pressure owing to the auction settlement next week and corporate tax payments estimated at around 300 billion rupees which will fall due by mid-December.
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