The Hindu Business Line : Bonds rally on rate cut expectations

Mumbai, Dec. 3 Prices of Government Securities (G-Sec) shot up by around Rs 2 on Wednesday on expectations that the Reserve Bank of India would soon announce “steep cuts” in its signal rates – repo and reverse repo.

Today’s rally, bond market dealers say, would help public sector banks turn in handsome treasury profits in the third quarter as most of them booked profits on long-dated papers. These banks had bet on the long-dated papers in a big way in the recent past.

The benchmark 10-year paper (8.24 per cent G-Sec maturing in 2018) gained Rs 1.62 (its yield thawed by 22 basis points) to close at Rs 110.01 (yield: 6.78 per cent) as against the previous close of Rs 108.39 (yield: 7 per cent).

At the longer-end of the maturity spectrum, the popularly traded 24-year paper (7.95 per cent G-Sec maturing in 2032) jumped by Rs 2.60 (its yield softened by 17 basis points) to close at Rs 107.15 (yield: 7.31 per cent) as against the previous close of Rs.104.55 (yield: 7.53 per cent).

“Today’s rally in the government securities market discounted a deep cut of anywhere between 100 and 150 basis points in the signal rates by the RBI. The market movement tomorrow will depend on a host of factors - inflation data, interest rate cut that RBI may effect, announcement of additional borrowing by the government, and the extent to which ECB and BoE cut rates,” said Mr S. Srinivasa Raghavan, Head-Treasury, IDBI Gilts.