Yields on gilts as well as corporate bonds initially dropped after Finance Minister Jaswant Singh today called for lower domestic interest rates in line with the global trend.
The prices of securities later dropped, pushing up the yield to earlier levels, but the market expects that a reduction in administered rates by the government will trigger a rate cut across the board in lending as well as deposit rates by banks.
The auction of 364-day and 91-day treasury bills (T-bill) on Wednesday will hold the key to short-term rates. The RBI has increased the quantum of 91-day T-bills from Rs 250 crore to Rs 1,000 crore for four weeks beginning with the auction tomorrow.
The 91-day T-bill yield, which dropped to 5.11 per cent on November 27, has moved up to 5.35-40 per cent today in the secondary market.
Similarly, the 364-day T-bill yield, which had dropped to 5.36 per cent on November 27, has gone up to 5.50 per cent.
The RBI today bought around 350 million forward dollars from the market in one of its biggest market interventions in recent times. This pushed the near-term premium substantially and raised the six-month dollar-rupee implied curve, correcting the distortions in the short-term rates.
Interest rate swaps (IRS) also went up for the second consecutive day today tracking the rising forward dollar premiums. The five-year swap linked to the six-month implied rupee rate was quoted up at 6.16/20 per cent, higher than the previous close.
Following the RBI's aggressive intervention, the three-month forward premium went up from 3.59 per cent to 3.74 per cent and the six-month forward dollar premium ended higher at an annualised 3.96 per cent, up from Monday's 3.83 per cent. Near-term one-month premium too showed signs of rising, from 3.60 per cent to 3.76 per cent.
