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June 25, 2001
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Money > Reuters > Report June 25, 2001 |
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Rate cut hopes buoy Indian bonds, yields at new lowGovernment bonds extended last week's bull run on Monday, with 10-year yields dropping to fresh lows, driven by continuing hopes of a central bank rate cut and amid ample supply of funds. The yield on the 11.50 per cent 2011 benchmark bond, which has a maturity of close to 10 years, was down to 9.57 per cent. It was dealt in noon trade at 112.51 rupees, up from Saturday's 112.23/27. "People are buying at every level, booking five-paise profits," a dealer with a private bank said. "The main reasons - the rate hopes, liquidity are all there." Yields have slipped in recent weeks on heavy churning of portfolios, with market sentiment buoyed by comfortable money market liquidity and hopes the Reserve Bank of India will cut the benchmark bank rate. Rate cut expectations strengthened last week with traders saying the RBI will lower domestic rates if the US Federal Reserve cuts rates for the sixth time in 2001 at its meeting on June 26-27. The Fed has already lowered rates by 250 basis points in five half point cuts this year, while the RBI has cut the bank rate twice by a total of 100 basis points since February. Dealers said market sentiment was supported by the gaps between bond auctions and heavy inflows from bond redemptions, which total Rs 60.6 billion in June, including Rs 23 billion in the current week alone. The government last auctioned 12-year bonds in end May. It, however, placed bonds with the central bank in June, some of which the RBI sold through its open market window. Last week, the RBI sold 11-year bonds for a notified amount of Rs 40 billion through its open market window. "I am expecting a twin bond auction to be held this week. That announcement will end this run," a dealer with a state-run bank said. Dealers said the government may announce a fresh bond issue soon since its ways and means overdraft facility with the RBI was fully drawn. It stood at Rs 118.71 billion on June 15. The ways and means facility is an arrangement under which the central bank allows the government to meet short-term mismatches in its finances. The government has 10 working days to repay the RBI. Call money traded soft at 6.95-7.00 per cent in noon deals.
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