Financial Daily from THE HINDU group of publications
Friday, Jan 30, 2004
Financial Daily from THE HINDU group of publications Friday, Jan 30, 2004 |
||
|
|
||
|
Money & Banking
-
Debt Market Debt market sees rates hardening Rukmani Vishwanath
Mumbai , Jan 29 THURSDAY'S crash in the prices of Government securities has thrown the debt market into a state of high alert. The yield on the 10-year benchmark paper, the 7.37 per cent 2014 rose to 5.19 per cent as against 5.13 per cent previously. The market, which reacted in part to observations of a possibly higher inflation made in Reserve Bank of India's Report on Currency and Finance, is also grappling with the apprehension, that a hike in interest rates may also well be just around the corner. "It looks like smooth sailing is over for now, and we may be encountering some rough weather. This is also evident from the lower trading profits reported by a number of banks in the third quarter this fiscal," said a dealer with a private sector bank. According to analysts, the recent meeting of the US Federal Open Market Committee was another key indicator in terms of where the interest rates globally may be headed. The Fed recently indicated that it has dropped its commitment to hold interest rates low for a considerable period and instead would be patient in keeping borrowing costs low. As an immediate reaction, the yield of the US 10-year paper rose around 10 basis points in a single day to 4.17 per cent. Analysts said it was just a matter of time before the US Fed hikes interest rates and this would in essence mean that interest rates would bottom out even domestically, even if there is no immediate hike in rates here. "There is a fundamental shift in the domestic market sentiment. The market has been lacklustre for a while now doing volumes of Rs 1,000-3,000 crore as against Rs 5,000-8,000 crore in a booming market," according to Mr Vivek Ahuja, Head-Fixed Income Research, Tower Capital Securities. Even if inflation does go below 5 per cent, it is unlikely that the bond market will see any rally as interest rates are unlikely to go down further. Lower inflation is likely to lead to stability in the economy but does not really provide any major positive impetus for the market, he added. One section of the market believes that there is no real reason to panic just yet as the liquidity overhang in the market continues to loom large. According to Mr P.Mukherjee, Head-Treasury, UTI Bank: "Liquidity is a positive factor we have at the moment. The market is currently in a state of extreme caution. In such situations the tendency is to sell and take in profits and run. Once there is a better view on inflation then there will be some buying interest."
More Stories on : Debt Market | Interest Rates
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2004, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|