Gilts trip on bout of profit taking

Bond prices fell by 25 to 30 paise across the board on profit-taking after yesterday's rally led the yields on the benchmark 10-year paper fell below the 7 per cent mark.

The rebound in global oil prices to above $51 a barrel and a likely hike in domestic fuel prices also weighed on the bond market.

The yield on the highly liquid 12-year, 8.07 percent government bond rose marginally to 7.07 per cent, off intra-day high of 7.09 and against 7.04 per cent on Wednesday. The yield on the bond had on Wednesday dropped to a two-month low of 6.96 per cent.

Finance Minister P Chidambaram has said the government might consider increasing fuel prices next week. Traders said any hike in fuel prices will push up inflation, which was 5.61 per cent last week, up

from around 5 per cent two months ago. The yield on the 10-year 7.38 per cent government bond closed at 6.97 per cent, off a peak of 7.38 per cent. The yield on the 10-year paper had first reached close to the 7 per cent mark on May 20.

A dealer said "the drop in bond yields is a good sign. Chidambaram's comments earlier this week against any interest rate increases is also having an influence. There are other reasons also, including projection of a normal monsoon this year."

The corporate bond market tracked the government bonds/ The yield on the benchmark five-year corporate bond inched up to 7.25 per cent from yesterday's 7.22 per cent. Primary corporate bond market saw a couple of issuances.

Housing Development Finance Corporation raised Rs 250 crore rupees through private placement of five-year bonds at a coupon of 7.20 per cent. The country's apex bank for housing finance, National Housing Bank, raised Rs 800 crore through bonds and commercial paper, traders said.