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Gilt auctions hold key; Re staid

OUTLOOK

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Our Banking Bureau Mumbai
Last Updated : Jan 28 2013 | 5:12 PM IST
 
Liquidity in the money markets is likely to be comfortable with an inflow of Rs 20,000 crore. The market is likely to wait and watch the auctions of securities worth Rs 8,000 crore slated between November 2 and 9.
 
Market players would make their moves based on the outcomes of these auctions, traders feel. The new supply of bonds in the first week of November will definitely push up yields.
 
A senior dealer with a public sector bank said, "Yields on bonds will be largely rangebound as participants may not be willing to take large positions. The two factors which will have a telling impact on them are inflation rate and spiralling oil prices." However, analysts feel that inflation is likely to soften this week due to the favourable base effect.
 
A trader at a foreign bank said, "With the US expected to continue raising interest rates and domestic inflation rising at a brisk pace, holding bonds would turn risky."
 
T-bills yields seen at 5.57%
 
Auctions of 91-day and 182-day treasury bills for Rs 2,000 crore and Rs 1,500 crore, respectively, are slated for this week. Of the Rs 2,000 crore, Rs 500 crore will be auctioned under the regular auction calendar and Rs 1,500 crore under the market stabilisation scheme (MSS). Of the Rs 1,500 crore, Rs 500 crore will be auctioned under the regular auction calendar and Rs 1,000 crore under the MSS.
 
Traders predict that yields on the treasury bills are likely to hover around the same range of 5.57 per cent and 5.83 per cent this week.
 
Call rates are expected to move in the 5.25-5.35 per cent range this week. This is more due to the two holidays on account of Diwali and Eid, because of which people would like to cover their positions.
 
CORPORATE BONDS
No new issues seen
 
There is little activity foreseen in the corporate bond market this week. Dealers foresee yields to be firm across all tenors.
 
There is little interest in the market as rates are expected to harden, keeping in mind the FOMC meeting on November 1.
 
There will be no fresh issues, said a dealer with a public sector bank. According to a private sector banker, the movements in the corporate bond market will largely be influenced by the gilt market behaviour.
 
There are no major growth drivers this week and yields will remain rangebound. Apart from oil prices, there are no other issues causing concern. The commercial paper market is expected to stay extremely stagnant with only a few state debt issues slated.
 
GOVERNMENT SECURITIES
Gilts to stick to a groove
 
The government securities market will remain lacklustre this week ahead of a slew of holidays on account of Diwali and Eid. In a rangebound market, dealers expect the g-sec market to move in a band of 10-15 paise.
 
"The market will witness only some holiday move since most players will remain inactive for the entire week," said a treasury head with a private sector bank.
 
Even as auctions worth Rs 8,000 crore are slated for the first week of November, it is unlikely to have any impact on the gilt market.
 
The market has been shallow with narrow trades and dealers expect this trend to continue in the coming weeks.
 
"With the US expecting to raise interest rates further in their meeting slated for November 1 and domestic inflation rising at a sustained pace, investors are hesitant to hold long-tenor bonds," another chief dealer pointed out.
 
CURRENCY MARKET
Lower volumes likely
 
The holiday effect will also trickle down to the foreign exchange market, which will impact the inter-bank trading and, hence, volumes. A dealer said, "The market will witness only customer-related traffic. There will not be much inter-bank trading during the festival season."
 
The rupee is expected to trade in a narrow range of 45-45.20. The US Fed will meet on November 1 to take a call on interest rates. However, any hike up to 0.25 per cent has been discounted by the market, say dealers.
 
Going forward, the local currency will take cues from the movement of the stock market indices. In the forwards segment, premiums are likely to witness a movement of 10-15 paise.
 
There will be some receiving pressure on near-term premiums. Any major movement in the forwards is possible only after December once there is some fresh demand from investors.
 
Recap: The rupee looked steady at 45.08/09 per dollar despite month-end pressure in the foreign exchange market. There was adequate dollar supplies in the market, which aided the rupee to meet the month-end pressure.
 
Corporates demand dollars to routine import and overseas debt payments at the end of the month. However, traders have been edgy on the local currency on account of sliding stocks in the equity market.

 
 

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First Published: Oct 31 2005 | 12:00 AM IST

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