Liquidity crunch led to a surge in the call rates. The yield on the benchmark 7.59 per cent 2016 GOI bond ended at 7.62 per cent, up by two basis points over the week
30-Dec-2006 •Research Desk
The mood in the debt market did not change much since last week; the severe liquidity crunch left traders with little surpluses to buy government bonds. Call rates at the end of the week stood at 18.5 - 19.5 per cent which is more than 13 percentage points higher than the rates on December 8, 2006 (6.10-6.20 per cent) when the CRR hike was announced by the RBI. The yield on the benchmark 7.59 per cent 2016 GOI bond ended at 7.62 per cent on Friday, two basis points higher than the week before. It was the SLR requirements to be maintained by banks that kept the trading volumes afloat. Towards the end of the week sharp a fall in US treasury prices put traders on the back foot. The inflation for the 12-month periods ending December 16, 2006 stood at 5.43 per cent, inline with expectations.
The rupee ended the year on a strong note at 44.23 to a US dollar. Crude prices also relaxed marginally during the week.
The start of the New Year is unlikely to hold any cheerfulness for the bond markets as the second phase of the CRR hike will be implemented on January 6, 2007. If the past two week's developments are anything to go by, we ought to gear up for a depressed market. As per the RBI borrowing calendar, another mop up of Rs. 9,000 crore is scheduled between January 5 and January 12, 2007. The cash crunch is likely to ease a bit, with many banks likely to follow SBI's lead in raising their Prime Lending Rate.