VR Logo

Range Bound

Bond markets pared much of the gains made initially during the last two trading days of the week. The yield on the benchmark GOI 2017 8.07 per cent bond shed two basis points to end at 8.15 per cent

Bond markets remained range bound during the week ended May 18, 2007. The bonds made some gains in the initial part of the week, but pared much of them in the last two trading days. The yield on the benchmark GOI 2017 8.07 per cent bond shed two basis points over the week to end at 8.15 per cent.

The markets started the week on a strong note on Monday as previous week's drop in inflation put to rest some of the concerns over further rate hikes in the near term. Moreover, optimism also prevailed as the worries over a possible cut in the SLR (statutory liquidity ratio) subsided. However, the gains were stemmed by the impending bond auction worth Rs 6,000 crore under the market stabilisation scheme (MSS) scheduled for Wednesday. The yield on the benchmark GOI 2017 8.07 per cent bond dropped two basis points to 8.15 per cent. The markets continued to advance on the next two days. A better than expected cash position enabled the traders to bid generously at the Rs 6,000 crore MSS bond auction. The central bank received bids worth Rs 16,600 crore.

The momentum built over the first three days was, however, reversed on the fourth day of the week. Finance minister's comments indicating towards further steps to bring the inflation down below 5 per cent led to profit booking. The trend remained pretty much the same of Friday as well. Inflation, for the 12-month period ending May 5, 2007, dropped to 5.44 per cent as against previous week's 5.66 per cent. However, it failed bring cheer to the traders who were expecting a larger decline.

Moreover, the market participants also awaited the details of the forthcoming twin gilt auction worth Rs 8,000 crore. Later, it was announced that it will be held on May 25, 2007.

Call rates continued to ease during the week, before finally ending at 8-8.25 per cent.