The Hindu Business Line : Bond prices crash by a rupee

TECTONIC shifts in the domestic political arena, fears of a rise in interest rates and apprehensions of a slowdown in reforms, led bond prices to crash by over 50 paise to Re 1 across maturities, in the debt market on Monday.

Debt market analysts, who have been comfortable over the tremendous amount of rupee liquidity in the system so far, now admit, that the future looks grim.

There are two-three factors, which immediately do not augur well for the market, they say.

Foremost among them is the mass exodus of FIIs from the equity market, which will effectively slam the brakes on incremental dollar flows into the country.

In this scenario, it will not be long before rupee liquidity in the market dries up as well, and with the global interest rates poised to inch up, things look bleak in the medium term, according to analysts.

To add to the woes of market participants, the Left parties, which look like they will have a significant role to play in the Congress-led alliance, have been lobbying for a hike in the domestic savings bank rates.

"A hike in savings bank rates will not be possible without an overall mark up in interest rates across the spectrum. If this is the case, we can expect yields to harden in the next few weeks," said an analyst.

Over the past couple of days bond market volumes have dwindled to around Rs 3,000 crore, as against robust trading volumes of around Rs 6,000 crore a couple of weeks back, dealers said.

Among the papers, which lost their sheen were market favourites, the 8.07 per cent 2017 that not only opened weaker at Rs 123.25, but was knocked down by 80 paise to Rs 122.45.

The 7.46 per cent 2017 paper that opened at Rs 118.10 gradually became cheaper towards close at Rs 117.30/40. The 6.05 2019 paper that opened at Rs 104 was hammered down to Rs 103. However, call rates remained stable at 4.25 per cent.

In the seven-day repo under LAF, the RBI received and accepted 44 bids amounting to Rs 22,410 crore, at the rate of 4.50 per cent.

In the fortnightly repo, the apex bank received and accepted 10 bids amounting to Rs 6,060 crore at the rate of 4.50 per cent.

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