Indian Stock Market

Weekly wrap up: Gilt yields edge up on expectation of RBI`s intervention

Gilt yields remained high on September 24, on tight liquidity conditions in the banking system on account of payment of tax by the corporates.The sentiments of the investors got affected in the bond market, as fresh government bonds worth Rs 165 billion and treasury bills of 91-days and 364 - days will be issued this week. With issuance of market stabilization scheme, liquidity conitions will be tightened. In addition to that, prices of the gilt were low on speculation that rising crude oil prices may affect the headline inflation causing it to rise. Inter-bank call rate, which stood high above 7%, is hovering around the rate of central banks rate of 7.75% reflecting tight liquidity.The benchmark 10-year federal bond yield ended at 7.86%, up four basis points from Friday`s close of 7.82%. Gilt yields rose on September 25, as investors expected the central bank to absorb excess l iquidity through auction of government securities under the market stabilization scheme (MSS). Low appetite for gilt was on account of auction of `5.87% G Sec 2010` and `5.48% G Sec 2009` under MSS worth Rs 50 billion each to be conducted on September 26.The sentiments were influenced on expectations that Reserve Bank of India would come out with some measures in the monetary policy in a bid to curb Rupee appreciation. It is noteworthy that there was surplus liquidity in the banking system even though direct tax collection rose 40% up to September 21, after the corporates paid taxes.The benchmark 10-year bond yield ended high at 7.91%, as against 7.86% on previous working day. Gilt yields dropped on September 26, as the cut-off yields were low indicating strong demand from traders. At the auction of 91-day treasury bills, the central bank fixed a low cut of yield of Rs 98.24 as against the previous auction of Rs 98.29. The notified amount for the auction was Rs 35 billi on out of which Rs 30 billion was market stabilization scheme (MSS) amount. Lower cut-off yield reflected strong demand for gilt in the debt market. Even though there is surplus liquidity in the banking system, demand for gilt showed increase in appetite among the investors. Surplus liquidity was reflected through the reverse repo window through which RBI absorbed Rs 227.65 billion via 18 bids for 1- day repos as against Rs Rs 261.80 billion via 25 bids for 1-day reverse repos on previous working day. The benchmark 10-year bond yield ended at 7.89%, lower than Tuesday`s close of 7.91%. Gilt yields marginally went up on September 27, as traders speculated that central bank will intervene further in order to absorb excess liquidity from the banking system.Traders stepped back on expectations that central bank will bring in more measures in order to curtail excess liquidity in the banking system. Although the central bank announced a series of measures to curb inflow of capital , traders are speculating that it would issue more bonds to suck excess liquidity from the banking system. However, fresh appetite was absent in the bond market as banks wanted to maintain a healthy balance sheet, after the corporates paid for taxes. In the forex market, RBI intervened to curtail Rupee rallying northward which inturn increased the unit in the banking system. Daily reverse repo auction today increased to Rs 281.80 billion as against Rs 227.65 billion on the previous working day. P Chidambaram said that one component of WPI - primary articles` inflation was 7.5%. Within primary articles, food is 5.8%. This is a worrying factor. Investors are waiting for inflation figures to come in tomorrow.The benchmark 10-year bond yield ended at 7.91%, rising from Wednesday`s close of 7.89%. Gilt yields declined on September 28 as inflation declined further, which excited the sentiments of traders.There was surplus liquidity in the system, as central bank intervened in the banking system to curb Rupee from appreciating which inturn increased the cash in the banking system. Further, center will auction market stabilization scheme (MSS), `5.87 % Government Stock 2010` for Rs 40 billion and 11.30 % Government Stock 2010` for Rs.30 billion to be sold (re-issued) through a price based auction using multiple price method. MSS bonds are used to absorb excess liquidity in the banking system. Sentiments of the investors also got affected on speculation that in order to suck liquidity from the market, the apex bank may hike the cash reserve ratio. The benchmark 10-year bond yield ended at 7.90 %, down from previous day`s (Thursday) close of 7.91 %.