The Hindu Business Line : Bond prices crash over inflation, interest rate worries

TIGHTENING liquidity, rising inflation and apprehensions of a hardening in interest rates led bond prices to crash by nearly Rs 2 in a jittery Government securities market on Friday.

Dealers said that the late evening auction announcement for Rs 8,000 crore on Thursday coupled with the hike in oil prices led to the slide in bond prices.

The inflation figure in the year till October 23 came at 7.38 per cent, higher than previous figure of 7.10 per cent. Higher inflation amid tight liquidity conditions led the prices to fall further.

The actively traded 11-year benchmark 7.38 per cent 2015 paper was traded at a low of Rs 101.25 before it closed marginally higher at Rs 101.30. Yield on the paper went as high as 7.20 per cent. The paper had closed in the previous session at Rs 103.20.

The 6.65 per cent 2009 paper closed below par at 99.65 after it had traded at a low of Rs 99.55.

Call rates in the inter-bank market were in a range of 5.80-6.50 per cent as liquidity crunch continued. The SBI strike also led to funds constraint, dealers said. They added that a few deals were offered at as high as 6.70-6.90 per cent.

In the three-day repo auction, the Reserve Bank of India (RBI) received 16 bids worth Rs 4,040 crore, of which 15 bids aggregating Rs 3,940 crore were accepted. In the three-day reverse repo auction, two bids aggregating Rs 105 crore were received and accepted.

In the CBLO market, 142 trades worth Rs 4,673 crore were transacted in the rate range of 5.90-6.15 per cent.

The rupee held its ground on the stronger side as it ended at 45.20/21 against the dollar after it had struck a five-month intra-day high at 45.05 earlier during the day. The domestic currency had closed at 45.20/21 per dollar in the previous session.

FII inflows and dollar sales by exporters propped the rupee to its highest close during the day, after it had opened stronger than previous close of 45.12/14.

Weakness of the US currency in the international market also seems to be favouring the rupee, according to a dealer.

State-run banks intervened in the foreign exchange market today to buy dollars, which led the rupee to move up to 45.24 during the day, from where it inched up towards its close, dealers said. The banks were perhaps mopping up greenbacks on behalf of the RBI, they added.