Oil bonds lapped up as gilts take a knock

The corporate bond market witnessed brisk trading in oil bonds on Wednesday even as bearish currents prevailed in the money market.

With reverse repo bids coming down to Rs 8,000 crore and oil prices moving up, the prices in the government securities across maturities fell by 15-25 paise.

"On the other hand, as part of profit booking, the State Bank of India sold around Rs 200 crore worth oil bonds acquired from the Indian Oil Corporation some time back," said corporate bond dealers.

The market lapped up the oil bonds due to higher yields.

Tight liquidity forced borrowers to foray into collateralised lending and borrowing programme, which witnessed a total volume of around Rs 10,000 crore on Tuesday followed by around Rs 9,000 crore on Wednesday.

Explaining the move, the bank dealers said that since there are limits imposed on various banks to lend and borrow from the call market, there is greater interest to tap the CBLO market.

Call rates on the other hand moved up to 5.20/25 per cent today with reverse repo bids coming down to Rs 8,000 crore.

The temporary tightness in the liquidity has emerged during the week as there are outflows towards advance tax and state government auction. Moreover, there is a government security auction scheduled for this week.

The yield on the ten-year benchmark 7.37 percent 2015 closed at 6.93 per cent as against 6.88 per cent on Tuesday.

The foreign exchange market remained flat albeit the premium on the forward dollars shot up.

Dealers said banks feel the spot rupee is set to depreciate in the medium term and therefore most of them bought long-term dollars.

Premium on six-month and one-year dollar closed at 1.42 per cent and 1.28 per cent, respectively, on Wednesday.