Bond volumes take a hit as traders go on African safari
On the eve of a crucial monetary policy review, key dealers in the bond market were absent from the country attending overseas conferences. On Monday, trading volumes halved in the bond market which saw very little activity although a 25-basis poi...
By TNN |
MUMBAI: On the eve of a crucial monetary policy review, key dealers in the bond market were absent from the country attending overseas conferences. On Monday, trading volumes halved in the bond market which saw very little activity although a 25-basis point rate cut was widely anticipated by dealers.
On Tuesday, the Reserve Bank of India is scheduled to announce its third quarterly review of the monetary and credit policy statement. However, most of the bond dealers and treasury officers from banks and corporates were away in Cairo or Singapore.
Most of the treasury traders were attending the annual conference organised by the Fixed Income, Money Market and Derivatives Association which is held in Cairo this year. The event, which is held outside the country every alternate year, saw 200 treasury managers from banks and bond houses in India fly to Egypt on Friday night. The presence of treasury heads from the corporate world was also dented on Monday because of several chief investment officers being taken for a trip to Singapore by Citi.
Trading volumes in the market dipped by almost 40-50%, due to the absence of several traders. On Monday, the total turnover in the government bond market was only worth around Rs 5,000 crore against an usual figure of Rs 8,000 crore. Of this, the trading in the benchmark paper, the 7.99% bond maturing in 2017, was around Rs 2,000 crore compared with a sum of Rs 4,000 crore on a normal day.
Usually, the bond market sees heightened activity whenever a cut in rates is expected. This time around, most traders were seen booking positions much in advance before they left for Cairo. Also, there is a lingering fear that RBI governor YV Reddy may refrain from reducing rates as the central bank’s actions have belied market expectations in the past.
Wall Street major Goldman Sachs feels that the central bank is more likely to shift its stance from a hawkish to a more neutral one, as it is not yet ready to actually lower rates. Given that inflationary pressures are still strong, lowering of rates could remain a distant possibility. The change in stance could be triggered by the rate cut announced by the US Federal Reserve a week ago, coupled with the possibility of one more rate cut by the Fed this week.
ADVERTISEMENT
According to a dealer with a multinational bank, the market is still divided over the possibility of a rate cut. He further pointed out, “There have also been instances of dealers booking profits ahead of the policy itself. While a rate cut is definitely not on cards, considering the robust growth seen in the economic system, the central bank may look at hiking the cash reserve ratio, but that could be an interim decision and not necessarily be a part of the quarterly review. Much of the issues observed under the current circumstances are US-centric and the central bank would move according to the pace of cash flows entering the country.”Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
