The market sentiment will be overshadowed by the fact that the inflation rate has edged up to 5.12 per cent for the week ended November 15 as against 4.88 per cent.
Corporate bond yields are likely to inch up by about five basis points even as surrogate bonds like the 6.20 per cent UTI paper and 6.96 per cent 2009 oil bonds will account for the maximum amount of trading.
The 2010 Rural Electricity Board (REC) paper, which has a put/ call option in 2008, will see good action as it is listed.
As the float in surrogate papers is less it is attracting good trading interest. This is underscored by the fact that the yield differential (spread) between the UTI bond and the corresponding maturity gilt has got compressed by about 18 basis points.
Daily trading volumes will continue to languish in the Rs 25 crore to Rs 50 crore region. The Central Board of Trustees (CBOT) is seen as a major buyer in the market as yields, which are ruling high, are attractive.
Last week it picked up both quantum and odd-lots from commercial banks, which are keen to off-load their excess unlisted non-statutory liquidity ratio portfolio.
Market players may liquidate their long-dated papers and get into shorter-tenor corporate papers as interest rates are unlikely to go down further.
As for new issues, Bank of Baroda is planning a Rs 600 crore unsecured subordinated debt (Tier-II) float. This issue will have a tenor of 10.5 years.
BoB is seeking to raise the resources at 50-60 basis points over the benchmark 10 year gilt.
