The Hindu Business Line : Bond dips on rate hike, inflation fears

Bond prices were down following fears of a likely increase in interest rates and upward movement in inflation as international oil prices rose to $75 per barrel, said dealers. Bond prices opened about 5-10 paise lower as US yields rose overnight.

Mid-session prices fell further following a statement from Dr Rakesh Mohan, Deputy Governor, Reserve Bank of India, that the central bank may review inflation and GDP targets in the monetary policy in July. The general trend of the market is negative.

"So far our domestic policy has been formulated keeping in mind oil price at $60. Now that Nymex has crossed $75 and brent crude oil has also crossed $70, it is possible that inflation targets may be revised. The statement could mean that RBI may forecast a downward GDP or an upward inflation movement," said a bond dealer with a private bank. The 7.37 per cent 8-year 2014 paper opened at Rs 96.02 (8.07 per cent TYM) and closed at Rs 95.9 (8.09 per cent YTM) against the previous close of Rs 96.15 (8.04 per cent YTM). The 7.59 per cent 10-year 2016 benchmark paper opened at Rs 96.25 (8.15 per cent YTM) and closed at Rs 96.15 (8.16 per cent YTM). The 9.39 per cent 5-year 2011 paper opened and closed unchanged at Rs 106.8 (7.72 per cent YTM). The positive factors for the bond market was the liquidity of around Rs 70,000 crore and expectation that headline inflation figures which will be released on Friday would be below 5 per cent.