The Hindu Business Line : Rupee hits 11-month low; bonds crash

THE ongoing turmoil in the domestic financial markets deepened on Tuesday over apprehensions of a global hardening in interest rates and rising demand for the greenback in the wake of lower trade flows.

While the rupee tumbled to an 11-month low, bond prices crashed by up to Rs 2 across maturities.

The rupee ended at 45.25/26 against the dollar, 35 paise weaker as against its previous close. The domestic currency closed at 45.90/93 on Monday.

Bankers ascribed the depreciation in the rupee to continued dollar demand from corporates and importers. Arbitrage in the non-deliverable forwards (NDF) segment has also contributed to the weakness in the rupee.

"Huge demand from importers covering and arbitrage by NDF led to the sharp hike in the dollar, though it is showing signs of weakness overseas," said Mr Vivek Royzada, Analyst, eMecklai.

In the near term, rupee is expected to reach levels of 46.80 against the greenback.

The six-month forward closed at 1.40 per cent (0.70 per cent) and the one-year at 1.10 per cent (0.61 per cent).

In the government securities market, bond prices crashed almost in tandem with the sharp fall in the domestic currency. The 10-year benchmark yield ascended its highest levels this year at 5.75 per cent.

A market characterised by lack of buying support saw players exiting longer tenor papers and short segment papers. This has led to eroding of profitability as mark to market valuations are coming down, according to debt market analysts.