Federal bond yields and swaps ended up on Monday, as the relentless rise in crude oil prices raised concerns over the pace of inflation moderation and fueled worries of further monetary tightening in coming months.
Oil prices rose by $2 a barrel on Monday as a wave of UN-mandated airstrikes on Libya and proliferating unrest in the Middle East fanned concerns about oil supply from the region.
The yield on the most-actively traded 8.13 per cent, 2022 bond ended 3 basis points (bps) higher at 8.12 per cent against last close. The yield on the second most-traded 8.08 per cent 2022 bond also ended 3 bps up at 8.13 per cent.
The relatively less traded benchmark 10-year bond yield closed 1 basis point higher at 8.01 per cent from last close.
The benchmark five-year swap rate settled 9 bps up at 8.06 per cent. The one-year swap rate ended 3 bps higher at 7.46 per cent. The swap curve is expected to shift upwards further with swap rates seen rising across tenures on concerns of further rate hikes, inflation and liquidity worries.
Volumes in the bond market were at Rs 4,690 crore ($1.04 billion) on the central bank’s trading platform, compared with around Rs 10,000 crore seen on a usual day. The finance ministry and central bank officials are likely to meet in late March to finalise the borrowing schedule.
Rupee ends up
The rupee ended stronger on Monday supported by the euro’s gains against the dollar, but surging oil prices put a lid on further appreciation and choppy domestic shares provided little direction.
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The partially convertible rupee closed at 45.0050/0150 per dollar, 0.3 per cent stronger than Friday’s close of 45.13/14. It traded in a range of 45.000-45.0900 intraday.
Call rate improves
The call rate settled further higher on the overnight call money market on lack of liquidity in the banking system after rise in key rates by the apex bank last Thursday to contain inflation. The call money rate finished strong at 7.70 per cent from last weekend’s closing level of 7.55 per cent.
The Reserve Bank of India under the Liquidity Adjustment Facility purchased securities worth Rs 55,400 crore from 38 bids at the One-day repo auction at a fixed rate of 6.75 per cent.