Financial Daily from THE HINDU group of publications
Tuesday, Oct 12, 2004
Financial Daily from THE HINDU group of publications Tuesday, Oct 12, 2004 |
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Interest Rates Money & Banking - Debt Market Bond prices take a beating — Higher cut-off at auction fuels rate worries Our Bureau
Mumbai , Oct. 11 BOND prices crashed by over a rupee across maturities as yields hardened to historic highs. Expectations of higher interest rates were fuelled by an exceptionally high cut-off at the auction of 7.38 per cent, 2015 paper. The Reserve Bank of India set the cut-off price lower at Rs 102.95 against the expectation of Rs 103.40, which translated to a yield to maturity of 6.99 per cent, which was far higher than the market expectation of 6.90 per cent, dealers said. "The bond issue was not fully underwritten. Primary dealers had underwritten about Rs 1,000 to Rs 2,000 crore of the issue. Banks subscribing to the paper preferred higher yields and hence the higher cut-off was set," said Mr M. Natarajan, Head, Money Markets, IndusInd Bank. The yield on the benchmark 10-year paper, the 7.37 per cent 2014 paper rose to its highest levels in almost two years, as it touched 6.81 per cent at a price of Rs 104.00. The yield on the paper was trading at 6.75 per cent in the morning. The yield on the 7.38 per cent 2015 paper rose to 6.93 per cent at a price of Rs 103.40. Before the auction, the paper was trading at Rs 104.25 at a yield of 6.85 per cent. "Considering the lack of appetite, the bidding was not aggressive and so the paper got subscribed at desired levels. The expectation of higher interest rates signals a repo rate hike in the next policy," said Mr Akshat Lakhera, bond trader at HDFC Bank. The market was also rife with concerns of devolvement but the acceptance of higher yields by RBI signals higher interest rates in future, said a senior trader at a primary dealership. Meanwhile, call rates remained steady between 4.50 and 4.60 per cent in the inter-bank market. Under the liquidity adjustment facility window RBI accepted 27 bids in the one-day repo worth Rs 7,645 crore and five bids in the 7-day repo worth Rs 560 crore. In the CBLO market, 134 trades were transacted amounting to Rs 4,999.20 crore.
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