The Hindu Business Line : Bond prices crash by over a rupee

MUMBAI: Apprehensions of a hardening in interest rates led to a crash in bond price by around one rupee across maturities on Monday in the government securities market.

The ten-year benchmark, 7.37 per cent 2014 paper closed at a yield of 5.5711 per cent, and ar Rs 113.26, a drop of about 90 paise from the opening levels at Rs 114.15. The dampened sentiment is on account of statements made by the Reserve Bank of India Governor, Dr Y.V.Reddy, which indicated a possibility of an upward revision in interest rates, keeping in line with global trends, according to bond dealers.

"The views of the chief of the central bank on revisiting the monetary policy, in addition to expectations of global interest rates hardening, and fears of inflation rise pulled the market down", said a trader with primary dealer.

The 8.07 per cent 2017 paper fell more than a rupee to close at Rs 118.50 after showing a higher of Rs 119.70 during the day. Volumes traded were thin at about Rs 3,000 crore.

Many banks and insurance companies along with other market participants are understood to be getting out of long-dated securities and holding short-term papers in order to brace themselves for a reversal in interest rates, according to debt market analysts.

Meanwhile, under the LAF window the RBI received 47 bids, which were fully accepted at the amount of Rs 16,650 crore.