The Hindu Business Line : Debt market volumes hit 2-year high in November

Mumbai , Dec. 18 Traded volumes in the debt market have zoomed this fiscal. The bond market has seen some good times this year with volumes jumping by as much as four times.

According to data from the Clearing Corporation of India, total traded volumes on the negotiated dealing system (order matching system) in November was Rs 1,28,230 crore, about four times higher than Rs 28,055 crore in the same month last year.

The volumes increased steadily from Rs 29,490 crore in April to Rs 70,715 crore in August, Rs 1,01,800 crore in September and finally Rs 1,28,230 crore in November.

2-year high

According to market participants, volumes in November this fiscal hit a two-year high.

"Bond yields have fallen from 8.43 per cent to 7.33 per cent between July and November. With the softening of yields, there was tremendous opportunity for traders to participate, which ultimately drove volumes in the bond market," said Mr J. Moses Harding, Head-Wholesale Banking group, IndusInd Bank.

The liquidity or excess cash in the system following dollar inflows (dollar buying against rupees) also increased to Rs 15,000 crore-Rs 20,000 crore providing comfort to bond dealers.

Changing profile

Investor profile is also undergoing a change with a rise in participation by insurance companies. "The sharp fall in treasury yields prompted investors and traders to take aggressive positions in the bond market. Heavy buying of long dated securities by insurance companies and commercial banks trimmed spreads between the 30-year paper and the 10-year paper to 20 basis points in November was a two-year low," said Mr Deepak Sood, Head of Money Markets, UTI Bank.

Global factors

Global factors aided the positive sentiment in the domestic market. The ten-year US yield softened to 4.45 per cent on November 30 from 4.60 per cent on November 1. "The US yields eased on the back of unfavourable data on housing and consumer price indices. Global crude prices also dipped to $56-57 per barrel by around the first week of November," said Mr K. Harihar, Head-Treasury, Development Credit Bank.

The US Federal Open Market Committee meeting in October sent doves flying, with market participants expecting a rate cut.

However, the outlook for the market is bearish. The hike in cash reserve ratio (CRR refers to the RBI holding back a percentage of bank deposits in cash for free to control liquidity in the system.) will drain out Rs 13,500 crore from the system while advance tax outflows will also take their toll. Couched by the profits made through the year, dealers, however, say that they can take more risks.

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