The Hindu Business Line : Bonds down on higher inflation

Bond prices were lower by about 30 paise following higher-than-expected inflation and statements by the RBI Governor that hint at a possible rate hike, said dealers. The Wholesale Price Index rose to 5.11 per cent for the week ended March 1, which was negative for the bond market. The Finance Minister also made statements that inflation and food prices were a concern and a rate cut could happen only if inflation is controlled. A statement by the RBI Governor, Dr Y.V. Reddy, that the repo corridor may widen raised concerns of a possible rate hike, said a bond dealer with a private bank. "The market, which was already in the selling mode, saw more selling following these statements. But towards the end of trade, prices recovered a bit," he said. This being mid- March, liquidity too is under strain, which is also putting pressure on bond prices, though the additional LAF by the RBI has given comfort, the dealer said. The total traded volumes were Rs 1,990 crore (Rs 3,850 crore). The 7.99 per cent-9 year-2017 paper opened at Rs 102.66 (7.58 per cent YTM) and closed at Rs 102.39 (7.62 per cent YTM) against the earlier close of Rs 102.71 (7.58 per cent). The 8.33 per cent-2036 paper opened at Rs 102.7 (8.08 per cent YTM) and closed at Rs 102.3 (8.11 per cent YTM) against the previous close of Rs 102.90 (8.07 per cent YTM). There could be some buying towards the end of the month as liquidity pressures ease, which could see bond prices gain a bit, the dealer said. - Our Bureau

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