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Rukmani Vishwanath

Mumbai , Nov. 19

BOND markets have seen sharp fall in volumes this week.

According to dealers, the lack of any "positive trigger" even in the wake of abundant liquidity has led to a dwindling in volumes. Bond prices too had been steadily declining since last week, in the absence of any significant buying interest, dealers said.

Debt dealers admit that trading has declined to around Rs 2,500-3,000 crore a day this week, as compared to volumes of Rs 7,000-8,000 crore in an active day.

Analysts are of the view that the market has been cautious on account of a variety of factors, including the Reserve Bank of India's recent allusion to keeping its options open on hiking the CRR as a tool to manage liquidity, in its report on the Trends and Progress of Banking.

However, the RBI Governor, Dr Y.V. Reddy, speaking to reporters at the sidelines of a book release here today, said, "while the RBI keeps all options open in terms of tools for monetary management, the Trend and Progress report was an analytical book and no operational significance should be read into it."

The market, however, continues to be confused in terms of what direction the interest rates may be headed in the medium term.

According to Mr Vivek Ahuja, Head, Fixed Income Research, Tower Capital Securities, "The market is likely to be cautious and range-bound in the near term. There is an expectation that inflation might stay firm up to mid-January. Also there is some amount of credit offtake expected which will naturally have an effect on liquidity. Aside from this, there are prevailing uncertainties on global interest rates hardening. There is no trigger at present, so not much activity is expected till December. In fact, quite a few players will be looking for an opportunity to exit at these levels."

Bond dealers contend that other factors had led them to refrain from building up bid positions. Clarifications are still awaited on the recent RBI circulars on debt listing norms, while the guidelines on the restructuring of the Liquidity Adjustment Facility (LAF) are still awaited.

According to Mr P. Mukherjee, Head (Treasury), UTI Bank, "General uncertainties are there, but we must lay a lot of emphasis on the liquidity. From here on, the 10-year yield might frequently touch 5.25 per cent. In fact, the RBI will want the market to get conditioned to the fact that it might go both ways, so the 10-year yield will range between 5 per cent and 5.25 per cent."

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