Bond prices slipped further on Thursday, with concerns over the possible impact of Wednesdays fuel price hike on the inflation number. Yields across the board rose, with the 10-year benchmark bond, the 8.24% paper maturing in 2018, ended the day at 8.19%, above the Wednesdays close of 8.14%, reports Our Bureau in Mumbai.
According to market participants, traded volumes were thin, with almost nobody willing to take long-term-positions. There is a heavily bearish sentiment, and we may see yields touching the 8.25%-mark soon, said a dealer with a private bank. With inflation estimated to cross the 9%-mark, Fridays inflation figure may have little relevance.
The rise in inflation has given rise to fears that the Reserve Bank of India (RBI) will have to take inflation-controlling measures soon, which could include a hike in repo rate or cash reserve requirements for banks. Yields on the overnight index swaps rose further on Thursday. The five-year OIS rose to 8.30% from the Wednesdays close of 8% while the one-year OIS inched towards 8%. The OIS market, which is more liquid than the government security market, is considered by many to be a reliable indicator of where interest rates are headed.
Meanwhile, the rupee continued to weaken, and ended the day at 42.90 against the dollar, 12 paise below its previous close. The dollar has risen internationally, and further risk-aversion by investors has dampened the sentiment for the local unit.
The rupee has been weakening through the week, following a dip in the local stock market and fears of a dollar-shortage in the system, stemming out of foreign investors repatriating their funds. The rupee had briefly snapped its month-long fall last week, when RBI announced that it would sell dollars directly to oil companies.
As the rupee inches towards the 43-mark, the market will be wary of central bank intervention, said a trader with a private bank. RBI had expressed its willingness to intervene in the forex market by selling dollars two weeks back, in a bid to protect the 43-mark.
Liquidity remained comfortable, with banks parking surplus funds worth Rs 23,395 crore with RBI through reverse repo operations of its liquidity adjustment facility. The central bank will auction Rs 10,000 crore of two government securities on Friday.
Overnight call rates remained comfortable as well. Rates on the inter-bank call market ended the day at 6.05% after transactions worth Rs 13,218 crore were carried out. Collateralised borrowing rates ended the day at 4.50% with transactions worth Rs 47,866 crore.