The Hindu Business Line : Bonds recover on buying support

The bond market was erratic as there was lot of selling and buying support. Prices opened lower, but recovered on buying to settle at almost the same levels as the previous close.

While the selling was by primary dealers, it was not clear who the buyers were, said dealers. "We suspect the buying in the G-sec market was either RBI or by an insurance or a large public sector bank at the insistence of the central Bank. Because nobody else could have been interested in buying at these levels," said a dealer with a private bank.

The 7.59 per cent 10-year benchmark paper opened lower at Rs 94.5 (8.42 per cent YTM) but recovered to Rs 95.02 (8.35 per cent YTM) and closed at Rs 94.82 (8.38 per cent). The 7.37 per cent-8 year-2014 paper opened at Rs 94.95 (8.26 per cent YTM), touched a high of Rs 95.3 (8.19 per cent YTM) and ended at Rs 95.05 (8.24 per cent YTM) against the previous close of Rs 94.90 (8.27 per cent YTM).

The volumes in the benchmark paper were worth about Rs 1,260 crore, which is a signal that PDs wanted to offload the stock, said the dealer. "This means that out of Rs 3,300 crore PDs still have Rs 2,300 crore left. So there is likely to be more selling tomorrow. But if there is no buying support, yields on the 10 year paper could touch 8.5 per cent," he said.

PDs were forced to pick up the G-sec in Tuesday's auction, as the cut off price was higher than expected. This devolvement should be seen as a transitional matter, the RBI Governor, Dr Y.V. Reddy, said. "We are under a new regime now. Once the FRBM has come into position, there is no provision for private placement and no devolvement on RBI. It is in transition," he said.