Financial Daily from THE HINDU group of publications
Friday, Jul 16, 2004
Financial Daily from THE HINDU group of publications Friday, Jul 16, 2004 |
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Debt Market Money & Banking - Debt Market Bonds plunge on all-round pressure — 10-year benchmark yield inches up to six per cent
Rukmani Vishwanath
Mumbai , July 15 FEARS of higher inflation figures and concerns about transaction tax dragged bond prices sharply on Thursday. The 10-year benchmark yield inched up to six per cent on Thursday, led by a crash of around 80 paise in bond prices across maturities. According to dealers, the fall in prices of securities alone don't seem to be much cause for alarm. After all, the market had seen in the past a decline of bond prices up to a rupee in a single day of volatile trade, said a dealer. What has thrown the market into a `red-alert' mode, is a variety of factors that include the steadily ascending rate of inflation, oil-prices that are perched at high levels and refuse to show signs of easing, global hardening in interest rates, a depreciating rupee and other domestic eco-political uncertainties. The current scenario is not only dragging down market sentiment but also impairing the ability of market participants to take a medium-to long-term view, said an analyst. In fact, one can see it in the way analysts and bankers are making all their forecasts with a certain amount of trepidation. There seems to be a general consensus, that this time around the markets are in dire need of some really positive triggers to lift it out of despondency. "Everyone is worried on the interest rates front and the market is also hanging in limbo due to the ambiguity on the transactions-tax issue. Oil prices are ruling very high at $39-40 a barrel. Domestically inflation has gone over six per cent and is poised to go up further. The Reserve Bank had fixed a higher yield of (as per the expectations of the market) at 4.83 per cent 2006 paper despite total subscription," said Mr U. Venkatraman, Head Forex and Money Markets, IDBI Bank. There are also concerns on the FII funds inflow into the country. The Sensex is staying below the 5000 points and to this extent, market confidence needs to be restored, he said. Although the market is flushed with a liquidity overhang of close to Rs 60,000 crore, there are concerns that the global hardening in interest rates will have a ripple effect in domestic markets, according to analysts. "We have reached a point where the market is being led by macro fundamentals. Nobody wants to build positions and the volumes are dwindling. Monsoons are looking bad and so there is a fear that the primary articles in the inflation index will get impacted and therefore trigger higher inflation," said Mr Vivek Ahuja, Head-Fixed Income Research, Tower Capital Securities.
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