Debt managers opt for short-term plans

The debt fund managers have voted for short term buy as the money market remains volatile ahead of the RBI's credit policy review.

The government securities market has largely been range-bound with a bearish undertone ahead of the quarterly review of monetary and credit policy slated for October 25.

Since 1 October 2005, the yield of 7.38 per cent stock maturing in 2015 hardened by six basis points at 7.11 per cent so far. Among the highly traded securities, 10.25 per cent 2021 government stock ended at Rs 125.50 (yield of 7.50 per cent) as compared to Rs 124.97 ( yield of 7.47 per cent).

"Irrespective of the immediate RBI action, there is a definite trend for hardening of interest rates in the next 1-2 years, though there could be a temporary appreciation in bond papers in the near future," said a debt fund manager .

The market looks nervous in the anticipation of a possible hike in the reverse repo rate by 25 basis points to 5.25 per cent, say analysts.

"RBI has to raise the short-term reverse repo rate to contain inflation pressures caused by robust demand and high oil prices," said a chief dealer at a private bank. The other determinants of the movement in g-sec market include US treasury notes and crude oil prices.

According to an analyst, "The inflation report (yoy) is about 4.5, which is relatively low. But over a period of last six months, the movement in the index is quite sharp. The inflation rate is not showing due to the base effect but the actual trend in the wholesale price index shows that inflation is hardening," said the senior manager, corporate economic cell of a corporate entity.

The market has been shallow and the investors are refraining from taking long positions because of a bearish outlook on gilts.

Suresh Soni, director, head-fixed income, Deutsche AMC, says that: "There is a significant amount of money coming to short term plans from the investor side, this is another major reason why the industry is opting for short term plans."

Nitin Jain, senior vice-president, head-fixed income, ICICI securities said,

"With a 25 basis point hike expected in reverse-repo rates, this behavior is expected from the industry. The Mutual funds have been heavy subscribers to the bank CDs issued in the past. More over, the investor money is also coming to short term plans, which also supports the mood of the industry."

DEBT BLUES

---

• There is a definite trend for hardening of interest rates in the next 1-2 years, though there could be a temporary appreciation in bond papers in the near future
• The market has been shallow and the investors are refraining from taking long positions because of a bearish outlook on the gilts