The Hindu Business Line : Bond volumes surge on hopes of interest rates stabilising

Causes for upsurge
Stability in interest rates which is in turn expected to reduce pressure on domestic interest rates
Easing of oil prices
Easing of yields of Government securities

Mumbai , Aug. 25

Bond market volumes have surged in the past 10 days from an average of Rs 2,200-2,500 crore to Rs 6,900 crore as yields of Government securities have eased. Stability in interest rates as indicated by the US Federal Reserve is expected to reduce pressure on domestic interest rates. Easing of oil prices is also seen aiding bond price upturn.

Rise in volumes

"There is more activity in the bond market as there has been a correction in interest rates. The yields on the 10-year benchmark fell substantially in the last 10 days. Unless RBI suddenly increases interest rates, the bond market is likely to see good volumes at least in this fiscal," said Dr Golak C. Nath, Vice-President and Chief Economic Advisor, Clearing Corporation of India Ltd.

According to the traded volumes on the Negotiated Dealing System-Order Matching, the number of trades in the 7.59 per cent-10 year-2016 benchmark paper increased from 81 on August 14 to 343 on August 25 and value of trades from Rs 445 crore to Rs 1,910 crore.

Trades in the 9.39 per cent 5-year 2011 paper increased from 51 on August 14 to 172 on August 24 and value from Rs 375 crore to Rs 1,175 crore.

The Statutory Liquidity Requirement will also increase, as banks build deposits to fund demand for credit. This genuine demand for SLR may result in banks buying more G-Secs, said a dealer with a private bank.

According to Dr Nath, rising interest rates could lead to a slight slowdown in credit offtake. This could leave banks with more funds, which could make its way into the G-Sec market. However, not all market participants agree with this.