For the first 4 days of the week, government securities moved in a range. Benchmark 10 year bond, 7.80% 2020 bond moved in between 7.55% and 7.61%.

Results of buyback of securities, in which RBI accepted amount of Rs 806 cr against a notified amount of Rs 10,000 cr. This led to a slight increase in the yields on Monday.

 Outflow of funds for payment of Broadband Wireless Access (BWA) auctions kept liquidity conditions tight. Amount accessed through the Repo window touched a high of Rs 82,915 cr on Thursday and averaged around Rs 70,000 cr per day of the week. Comments from officials that  liquidity easing measures to be taken took some pressure off the bond market.

Primary articles’ inflation for the week was at elevated levels at 17.6% compared to 16.86% last week. This again put pressure on the bonds and yields rose in the first half of trade on Thursday.

Rally in US treasuries after the announcement from Federal Reserve that low rates will be retained for an extended period of time kept the sentiments on a bullish side. These mixed sentiments kept the yields in a range.

However on Friday, after the announcement of market linked oil prices, yields jumped to the weekly high of 7.68% (click here for MB update). The benchmark bond closed the week at 7.65%, 9 bps higher than last week’s close of 7.56%.

For the next week, we expect the yields to trade on a bullish side due to inflationary concerns. Liquidity situation might ease but concerns of rate hike due to high inflation will overshadow the ease in liquidity.

Author:Praveen Bajaj

Related posts:

  1. Weekly G-Sec update:June 12, 2010
  2. Weekly G-Sec update May 22, 2010
  3. Bond market/ G-Sec update