Government bond prices ended flat today giving up almost a rupee of intraday gains due to worries that the Reserve Bank of India (RBI) is likely to cut statutory liquidity ratio to improve cash-supply condition.
Fear of an SLR cut had been sparked by the reported remarks of Suresh Tendulkar, head of Prime Minister’s Economic Panel, earlier today. Tendulkar is reported to have said the RBI had room to cut cash reserve ratio and SLR to better the liquidity condition.
The 10-year benchmark 8.24 per cent, 2018 security settled at Rs 102.93 or 7.7978 per cent yield largely unchanged from Friday’s closing of Rs 102.95 or 7.7949 per cent yield. But, not all market participants foresee an SLR cut.
Government is scheduled to raise Rs 39,000 crore through sale of gilts in October-March. Banks need to invest 25 per cent of their net demand and time liabilities in gilts. Worries that government’s market borrowing could spill over into the March quarter kept the market sentiment a bit cautious.
Corporate bond: Volume up
Trade volume rose today as insurance companies stepped up purchases, while mutual funds indulged in selling on persistent tight liquidity, dealers said.
“Mutual funds are still facing a severe cash crunch and they were the only majors sellers in the market today,” said a dealer at an insurance company. Insurance companies and a few provident funds bought corporate 5-year and 10-year bonds in secondary market.