The Hindu Business Line : Bond prices surge; rupee firming up

MUMBAI: Bond prices jumped by about Rs 2 in some long-tenor papers in Government securities market on Friday. The 8.35 per cent 2022 Government stock surged by over Rs 2 to close at Rs 114.10 as against the auction cut-off at Rs 112.05 announced on Thursday by the Reserve Bank of India. The 10-year benchmark 7.37 per cent 2014 paper moved up by about 20 paise to close at Rs 110.35 at the YTM (yield to maturity) of 5.94 per cent.

"At present, the yield curve for longer-end papers is steep, thus it has scope to flatten further. Traders expect the yield on longer end papers to decline leading to increased activity in these papers,'' said a bond trader with a primary dealer.

The closing yield for 8.07 per cent 2017 paper was at 6.3 per cent whereas it was 7 per cent for the 8.35 per cent 2022 paper. The yield difference was also about 60 basis points between the 8.35 per cent 2022 paper and the 11-year benchmark 7.38 per cent 2015 paper.

Market participants expect inflation to come down in the following weeks. The prices are expected to move up until the transfer of bonds to the HTM (held-to-maturity) category of banks from the SLR category, said a dealer with a private sector bank.

Call rates in the inter-bank market were in the range of 4.4-4.5 per cent, with liquidity remaining tight on account of auction outflow, dealers said.

The RBI accepted all 10 bids in the 7-day repo auction and 39 bids in the 3-day repo auction worth Rs 1,420 crore and Rs 19,320 crore, respectively. In the CBLO market, 108 trades were transacted worth about Rs 3,300 crore.

The rupee closed marginally stronger at 46.2650/2750 as demand for dollars was weaker than usual. It had ended at 46.29/30 on Thursday. The rupee strengthened towards the end as a big corporate from the oil industry sold dollars. Dealers said that short-term market sentiment had changed in favour of an appreciating rupee. Continuous demand for dollars had subsided with oil prices softening .

Forwards finished softer with the six-month closing at 1.81 per cent (1.88 per cent) and the twelve-month at 1.56 per cent (1.68 per cent).