Government bond yields plunged over 20 basis points in the 10-year segment On Wednesday because investors continued their aggressive buying after Reserve Bank of India sounded concerns over the economy and a hefty rate cut by US Federal Reserve fuelled hopes of similar action here, dealers said.
The 8.24%, 2018 security ended at Rs 117.42, or 5.7978% yield to maturity, compared with Rs 115.95, or 5.9854% yield to maturity on Tuesday.
Federal Open Market Committee lowered its target on interest rates by 75 basis points to a record low of 0.00-0.25 per cent from 1.00 per cent earlier, and also cut its discount rate by 75 bps to 0.50 per cent.
RBI in its report on Trend and Progress of Banking in India for 2007-08 said Indian economic growth could see more moderation.
Since October, RBI has lowered Reverse Repo Rate by 100 bps and Repo Rate by 250 bps.
RBI has also cut banks’ Cash Reserve Ratio by 350 bps in a bid to keep the liquidity in the banking system adequate.
Gilt prices also stayed firm as traders drew comfort from better-than-expected results of On Wednesday’s Treasury bill auctions, dealers said.
RBI set a cut-off yield of 5.44 per cent at the 91-day T-bill tender against the market expectation of 5.53 per cent. Similarly, central bank set a cut-off of 5.35 per cent at the 364-day T-bill tender, while the market was estimating 5.44 per cent.
Rupee gains
The Indian unit ended at Rs 47.6500 against dollar compared with Rs 47.8800 on Tuesday. Intraday, rupee had touched a new one-month high of 47.2000/$1.
A finance official from another state-owned oil company said about buying $16 million from a very large state-owned bank and a large private bank around Rs 47.30 against dollar levels.
Apart from buying dollars in the spot market, the oil company also bought $16 million directly from Reserve Bank of India On Wednesday at the reference rate.
MFs line up for CDs
Mutual funds continued to invest in one-year certificates of deposit (CDs) as they received inflows in their fixed maturity plans, dealers said. On Wednesday, banks placed around Rs 2,000 crore of CDs On Wednesday compared with Rs 2,100 crore on Tuesday.
Fund managers are also of the view that short-term rates may ease further as Reserve Bank of India is likely to cut interest rates.
Federal Open Market Committee had slashed its target rate by 75 basis points to record low of 0.00-0.25 per cent on Tuesday. Fed also cut its discount rate by 75 bps to 0.50 per cent. Rates have remained unchanged, as banks have been placing CDs continuously in market as most of their papers are expiring this month.
Three-month CPs were quoted at 12-13 per cent On Wednesday compared with 13.0-14.0 per cent on Tuesday, while three-month CDs remained unchanged at 7.40-7.60 per cent.
