The Hindu Business Line : Bond prices crash by Rs 2

Bond prices crashed by around Rs 2 reacting to what market participants called the `double whammy' from the RBI. "Prices crashed by around Rs 1.50 in just five to seven seconds," said a shocked dealer. Most bond dealers were expecting either no hike or a smaller hike of 25 basis points in the repo rate. Bond dealers heavily sold after the announcement of the hike with the 10-year yield, rising sharply to an intra day high 9.54 per cent YTM.

However, yields eased slightly later in the day as there was some short-covering. The RBI governor's statement about expecting inflation to ease to 7 per cent in the fourth quarter was taken positively by traders.

Bond dealers said that if the fiscal situation deteriorated and there was more supply of government paper in the market, there could be more pressure on yields. "There could be some worsening in bond yields as issuances in the market go up. The ten-year yields could go up to 9.75 per cent and if we are not able to control inflation and interest rates, then in the next few months we could see it go up to 10 per cent," said Mr R.V.S. Sridhar, Senior Vice-President, Treasury, Axis Bank.

The announcement of a Rs 10,000 crore auction is expected in the first week of August. Dealers expect to see yields inching up further after the auction. In the first quarter, banks suffered a dent in their profits as there has been dramatic rise in provisions for Mark to Market losses. Banks have seen a significant depreciation in their government security portfolio.

According to Mr Sachchidanand Shukla, Economist, Enam Securities, marked-to-market losses are set to rise with the 10-year yield firming up to 9.5 per cent.

The 8.24 per cent-10 year-2018 opened at Rs 94.80 (9.05 per cent YTM) and closed at Rs 92.67 per cent (9.40 per cent YTM), against the previous close at Rs 94.70 (9.07 per cent YTM). The 9.39 per cent-3 year-2011 paper opened at Rs 100.42 (9.22 per cent YTM) and closed at Rs 100.12 (9.34 per cent YTM). - Our Bureau

More Stories on : Govt Bonds

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page