The Hindu Business Line : Bond rally continues

The government securities market rallied on Thursday by a rupee nearly on the back of expectations that the Reserve Bank of India would cut, before long, the signal rates - repo (the interest rate at which RBI lends funds to banks) and reverse repo (the interest rate at which RBI absorbs excess funds from banks) - as well as the cash reserve ratio.

The benchmark 10 year paper (8.24 per cent 2018 G Sec) appreciated 95 paise to close at Rs106.57, implying an yield of 7.26 per cent, as against the previous close of Rs 105.62 (7.40 per cent). Intra-day, this paper hit a high of Rs 107 (7.21 per cent). However, profit-booking later resulted in the gains being pared.

At the longer-end of the maturity spectrum, the 28 year paper (8.33 per cent 2036 G Sec) surged by Rs 1.40 to close at Rs 104.65 (7.91 per cent) as against the previous close of Rs 103.25 (8.03 per cent). Intra-day, this paper was even dealt at a high of Rs 105.50 (7.84 per cent).

"While liquidity situation in the markets is comfortable as of now, the only worrying factor is the rupee. If the RBI cuts key rates, the rupee will come under pressure. Further, the oil companies' dollar fund requirements will accentuate the weakness of the currency. I think, the central bank will open a special window for oil companies to take care of their dollar borrowings," said Mr S. Srinivasa Raghavan, Head of Treasury, IDBI Gilts. Given the fact that the banks are still parking surplus funds with the RBI (banks parked Rs.27,545 crore on Thursday through RBI's reverse repo window) and inflation has trended lower to 8.90 per cent (in the week ended November 8) as against 8.98 per cent in the previous week, market players are expecting the RBI to cut the key rates reverse-repo (by 100 basis points) and repo (by 50 basis points).

This measure, bond market dealers say, would force banks to lend to the productive sectors of the economy instead of deploying funds with the central bank. - Our Bureau

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