The Hindu Business Line : Bond prices crash; rupee tad firmer

MUMBAI: Bond prices crashed by around one rupee across maturities in the Government securities market on Friday as the Reserve Bank of India announced a `fixed rate' auction.

The 10-year benchmark yield firmed up to touch a high of 6.68 per cent levels. The 7.37 2014 paper got dealt at Rs 106 on the higher side, after which it slipped to a low of Rs 104.90. The 6.65 per cent 2009 opened at Rs 101.25 got dealt up to Rs 101.75 and then slipped back to Rs 101.15.

The market which was already reeling under apprehensions of rising oil prices and higher inflation was jolted by the announcement for a re-issue of the 7.38 per cent 2015 paper for raising Rs 6,000 crore, to be held on October 11.

"There was a general expectation that the auction would have had a floating rate, taking into account the prevailing tensions in the market", said a dealer with a private sector bank.

Although the market opened lower than its previous closing, bond prices inched up when the inflation rate came lower than expectations at 7.38 per cent for the week-ended September 25. The market was expecting inflation to be in the range of 7.60 per cent.

The gains in bonds were also offset by the news that international crude prices had breached $ 53 a barrel.

Despite the day's losses, bond dealers expect the market to settle by next week.

Meanwhile, in the seven-day repo under LAF, the RBI received and accepted 5 bids amounting to Rs 585 crore at the rate of 4.5 per cent.

In the 3-day repo, 31 bids amounting to Rs 11,455 crore were received and accepted at the rate of 4.50 per cent.

Call rates ruled between 4.40 and 4.60 per cent in the inter-bank market.

The rupee closed marginally stronger at 45.81/82 against the dollar as against Thursday's levels of 45.85/86.

The domestic currency got dealt to an intra-day high of 45.8050 on the back of good dollar supplies. "There is a good amount of FII money coming into Indian equities which in turn augurs well for the rupee, at a time when there are concerns of rising crude prices", said a dealer.

The RBI Governors' statement that the central bank will meet any excess oil demand for dollars with its reserves had bolstered sentiment, dealers said.

In the forwards market, premia were lacklustre with the six-month premium ending at 2.45 per cent and the one-year premium ending at 2.05 per cent, almost unchanged from its previous levels.