Bonds Were Down Post Auction; New 10-yr Debuts: Rajesh Sharma Money Matters Financial Services Limit

Prices of most government bonds ended lower as traders reduced positions to make room for the 150 billion rupees worth of bonds auctioned on Friday

. The government today sold 30 billion rupees worth of 8.24%, 2018 bond, 70 billion rupees of a new 10-year bond, 30 billion rupees of the 8.97%, 2030 bond, and 20 billion rupees of the 8.33%, 2036 bond. The new 10-year bond--8.15%, 2022 bond--ended below par at 99.90 rupees or 8.16%. The current benchmark 8.79%, 2021 bond ended at 102.79 rupees or 8.35% yield as against 102.84 rupees or 8.35% yield at close on Thursday. The most-traded bond on Friday was 9.15%, 2024 bond which ended at 105.85 rupees or 8.38% yield as against previous close of 105.95 rupees or 8.37% yield. Fear that issuance of a new 10-year gilt may depress appetite for the 8.79%, 2021 bond and 9.15%, 2024 bond pushed prices on these active papers lower. The 8.15%, 2022 bond ended down as some traders trimmed positions of the stock on view the paper is aggressively priced. However, most traders said the 2022 paper was well-priced and reflected the interest rate view in the market. Intraday, bond prices gave up gains as comments by RBI Deputy Governor K.C. Chakrabarty dampened hope of a rate cut. Chakrabarty said concerns over high interest rates were exaggerated and that he did not think interest rates were high enough to adversely impact growth. However, absence of a government bond auction next week kept the underlying sentiment positive.

Bond prices did not fall sharply also due to hope the Reserve Bank of India will cut the key repo rate at the upcoming policy review on Jun 18. Such expectations have emerged due to the slowdown in domestic growth, and a feeble global economic situation. In Jan-Mar, India's gross domestic product growth was 5.3%, down sharply from 6.1% in Oct-Dec and 9.2% a year ago. Persistent global turmoil has supported bond prices for the past several sessions. On Thursday, yield on the benchmark 10-year US bond fell 2 basis points to 1.65% and July crude oil futures contract on the New York Mercantile Exchange declined 20 cents to $84.82 per barrel. Volume was marginally lower today from Thursday. Gilts and treasury bills worth 233.35 billion rupees were traded as against 246.90 billion rupees on

Outlook

Bond prices are seen rising sharply as the RBI announced a bond purchase auction worth 120 billion rupees, scheduled Tuesday. The central bank has offered to purchase the 8.19%, 2020 bond, the 8.79%, 2021 bond, the 8.08%, 2022 bond and the 7.35%, 2024 bond. View that the RBI will cut key interest rates at the upcoming monetary policy review on Jun 18 may also provide support to bond prices. Intraday, bond prices may give up some gains due to profit sales. CMD Rajesh Sharma expects yield on the benchmark 8.79%, 2021 bond to be in the 8.30-8.35% band.

by: Kiran K.

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