Weekly G-Sec update:June19, 2010
High inflation released on Monday set the tone for the week. As expected, with the release of inflation above 10% mark, yields on benchmark 7.80% 2020 bond rose 8 bps to close at 7.69% on Monday under fears that RBI might be forced to raise rates to tame inflation. Rates also rose after comments from Finance Secretary Mr Ashok Chawala that bond issuance schedule will not be postponed which led to buying in bonds.
However, after Monday, we saw buying returning to the bonds as comments from RBI officials said that liquidity easing measures will be taken. RBI bought back bonds worth Rs 8,307 cr against a target of Rs 100 cr announced further buyback of bonds worth Rs 10,000 cr on June 21.
Liquidity condition did ease in the current week. Till last week, liquidity was tight due to 3G spectrum payment and advance tax payment by banks and companies. For the week, average of the combined volumes on 1st and 2nd window of repo stood at Rs 34,855 cr compared to Rs 60,311 cr for the last week.
Going forward, we expect the liquidity conditions to ease but the same will not go back to the levels of Rs 35,000-40,000 cr of surplus due to good credit demand part of which is evidenced by the good credit growth for the fortnight ending June 4, 2010.
All these put yields in a comfortable position and yields closed at 7.56% for the week compared to 7.61% last week, and 13 bps down from highest point of the week.
High inflation has sparked debate of a rate rise by RBI again and market will be very sensitive to comments from RBI and Finance ministry officials. We expect yields to trade with a positive bias for the week.
Author:Praveen Bajaj
Popularity: 10% [?]
Related posts: