The Hindu Business Line : Bond prices see huge rally; rupee gains 70 paise

Mumbai, Dec. 18 Falling inflation numbers and a cut in rates by the US Federal Reserve brought cheer to the currency and the Government securities market with the prices of the 10-year benchmark security rising by Rs 2.40 and the rupee appreciating by 70 paise.

Bond prices saw a huge rally as inflation fell to 6.84 per cent for the week ended December 6, from 8 per cent in the earlier week and below the market expectation of 7.49 per cent.

According to bond dealers, because of the slowdown in the economy, Government securities have become the safest investment, leading to the huge volumes in the market.

With inflation figures dropping, there are increased expectations of a further rate cut by the Reserve Bank of India, said Mr Ashish Parthasarathy, Deputy Treasurer, HDFC Bank. The euphoria in the bond market currently is similar to that in the equity markets when the Sensex was at 16,000-levels. Nobody knows how long it will last. But a 10-year investment at 5.5 per cent does not make sense, said a bond dealer with a private bank.

Total traded volumes on the order matching system were at Rs 27,485 crore (Rs 18,410 crore).

The 8.24 per cent, 10-year 2018 paper opened at Rs 117.82 (5.75 per cent yield to maturity – YTM) and closed at Rs 119.83 (5.49 per cent YTM), against the previous close of Rs 117.42 (5.8 per cent YTM). During the day it touched a high of Rs 120.14 (5.46 per cent YTM).

Rupee appreciates

The rupee appreciated by 70 paise against the dollar as the greenback weakened in the overseas markets due to sustained selling pressure.

The domestic currency opened at 47.33/35 and strengthened to close at 46.93, as against the previous close of 47.64/66.

Sentiments also improved as the domestic equity market ended in the green.

With oil prices falling, the pressure on the import bill has reduced. Also, the pressure on the rupee has eased as the FII outflows have decreased, Mr Parthasarathy said.