The Hindu Business Line : Bond prices crash; rupee unchanged

MUMBAI: Bond prices crashed by a rupee across maturities consequent to the Reserve Bank of India fixing higher than expected yield in its auction on Wednesday.

A yield of 5.53 per cent was fixed on the 6.18 per cent 2005 paper auctioned for Rs 5,000 crore. The market was expecting a yield of 5.25 per cent on this paper. In fact, the cut-off yield on the one-year treasury bill was also higher than expected at 5 per cent.

Following this, the yield on the 10-year benchmark paper - - the 7.37 per cent - - 2014 rose 8 basis points to close at 6.53 per cent.

In the last ten minutes of trading post-auction result announcement, the prices fell by half a rupee.

The 11-year benchmark fell to Rs 106.00 from the day's high of Rs 106.90. The security opened at Rs 105.60 in the morning.

Bond market participants have taken the higher yield on the 6.18 per cent 2005 paper as a signal of the central bank's comfort with the higher yields. "It looks like we might see a hike in interest rates in the near future", said a dealer.

Market participants expect the 10-year benchmark yield to surge to 6.75-7 per cent on Thursday.

Meanwhile, call rates in the inter-bank market were about 4-4.50 per cent while in the collateralised borrowing and lending obligation market, they were in the range of 4.3-4.5 per cent. In the CBLO market, 68 trades worth Rs 1,746.45 crore were transacted.

Under the LAF window, the RBI accepted all 8 bids worth Rs 1,925 crore and accepted all 44 bids worth Rs 25,355 crore in the 1-day repo.

The domestic currency finished at 46.35/37 per dollar, fairly unchanged from the previous closing levels on back of support of the state-run banks selling greenbacks, dealers said.

The demand for dollars from corporates and oil companies drove the domestic currency down to the day's low at 46.4250 against the dollar in the early trading hours, dealers said.

At these levels, nationalised banks began selling dollars, perhaps at the direction of the central bank, they said.

The forwards market did not witness major movements. The six-month forward closed at 2.74 per cent (2.75 per cent) while the 12-month forward ended at 2.42 per cent (2.5 per cent).