After a week of lacklustre sentiment, the bond market got to a good start on interim Budget day. This was after the 'mini Budget' series of announcements lifted the mood. |
Fiscal deficit pegged lower at 4-4.5 per cent coupled with a lower borrowing program for the first quarter of the new fiscal 2004-05 and adherence to low inflation target of 4-4.5 per cent cheered up bond dealers who were groping for triggers for quite some time. |
Prices of long-term gilts went up by 50-60 paise while the medium-term ones rose by 20-30 paise across the board. |
The ten-year benchmark 7.37 per cent 2013 that was hovering around 5.22 per cent last week, came down to close in the range of 5.18-19 per cent. |
Good buying demand came from all nationalised banks and foreign banks which were sitting after liquidating positions as players preferred to retain cash as uncertainty loomed on the long-term interest rate outlook. |
Abundant liquidity flooded the market as the daily repo of the Reserve Bank of India witnessed subscriptions at Rs 40,000 crore. Call rates ruled in the range of 4.30-4.35 per cent. |
Dealers are of the view that going forward, rate of inflation will start coming down due to the base effect. |
In fact, the entire market is waiting for that to start happening so as to a get a positive real rate of interest. |
Dealers added that real rate of interest on gilts have turned negative since the inflation has been ruling above 6 per cent. |
However, after two days of rally following positive triggers from the mini budget, the bonds market crashed with prices in the long term papers falling by almost 50 paise. |
The sentiment was marred by Bank of England raising its base rate by 25 basis points, from 3.75 per cent to 4 per cent. |
Earlier a rise in base rate effected by the Bank of New Zealand had also sent strong signals on firming up of interest rates around the globe including India. |
Dealers said that while it would be premature to assume that there will be a complete interest rate reversal immediately. |
However, we might see a possible firming up of the rates eventually. The Bank of England's action was taken up seriously by the market players as the last week meeting of Federal Reserve had virtually signaled a gradual firming up of the rates, said dealer. |
Across maturities, prices fell with medium term papers falling by 20-30 paise. The ten-year benchmark 7.37 per cent 2014 closed at 5.20 per cent as against a close of 5.17 per cent on Wednesday. |
Gilts ended the week a tad higher with the ten year paper closing between 5.20-22 per cent with inflation rate released on Friday ruling flat at last week's level of 6.12-13 per cent. |
Throughout the week, the spot rupee continued to strengthen on the back of dollar weakness and fore inflows. |
During the week, the rupee closed at a 17-week high of 45.26/27 against the US dollar despite intervention by the central bank. The rupee opened at 45.29/30 against the previous day's close of 45.28/90 and was mostly dealt at 45.27/28 levels. |
Dealers said that there was significant inflow of dollar which kept the rupee from falling. Besides, exporters were covering their positions in anticipation that the rupee may gain further, which added to the dollar inflow. |
Forward premiums ended sharply lower after having risen for several days in a row as many foreign banks and companies unwound long forward dollar positions on view that a further rise in premiums is unlikely. |