Bonds rally after Fed cut, Re dips
Taking cues from the US market, local dealers are also building up positions on hopes of RBI cutting either the repo rate or cash reserve requirements, in its forthcoming quarterly review of the monetary policy.
By TNN |
MUMBAI: The day after the US Federal Reserve cut interest rates saw prices of government bonds rally sharply. Late on Tuesday evening, the US Fed announced a 75 basis point cut in the Fed Funds rate to 3.75% and the discount rate to 4.50%. Taking cues from the US market, local dealers are also building up positions on hopes of RBI cutting either the repo rate or cash reserve requirements, in its forthcoming quarterly review of the monetary policy.
The yield on the 10-year benchmark bond ended the day at 7.39%, down seven basis points from the previous close of 7.46%. Yields had touched a two-year low of 7.29% during the day. “Bonds rallied sharply after opening, in a reaction to the Fed rate cut,” said a dealer. What followed was a spell of profit taking on the part of dealers.
Auctions worth Rs 6,000 crore were carried out for treasury bills of two separate maturities. The RBI declared a cut-off yield of 7.18% on the 91-day T-bill and a yield of 7.25% on the 182-day T-bill, both of which were above market expectations. There are slight concerns on the liquidity front, with RBI moping up bids worth only Rs 3,505 crore through the reverse repo auction of its liquidity adjustment facility.
In the foreign exchange market, intervention from the central bank caused the rupee to dip by 10 paise. The rupee ended the day at 39.58/59 against the dollar, down from Tuesday’s close of 39.48/49. The rupee had hit a high of 39.38 during the early part of the day, following which nationalised banks aggressively bought dollars.
“This could have been to cancel out the arbitrage opportunities at the dollar-rupee gap at the non-deliverable forwards market,” feels a trader with a private bank. Another view is that the central bank is anticipating a further bout of foreign inflows and is preparing for that.
Rates on the inter-bank call market opened at the day’s high of 8%. Trades worth Rs 25,099 crore was transacted on the call market, and the rates ended the day at 7.25% after touching a low of 6%. Rates in the market for collateralised borrowing and lending obligations ended the day at 6.82% after transactions worth Rs 43,800 crore were struck.
The rates had touched a high of 7.25% during the day. Repo rates ended the day at 7.00% after transactions worth Rs 19,814 crore were carried out.
The yield on the 10-year benchmark bond ended the day at 7.39%, down seven basis points from the previous close of 7.46%. Yields had touched a two-year low of 7.29% during the day. “Bonds rallied sharply after opening, in a reaction to the Fed rate cut,” said a dealer. What followed was a spell of profit taking on the part of dealers.
Auctions worth Rs 6,000 crore were carried out for treasury bills of two separate maturities. The RBI declared a cut-off yield of 7.18% on the 91-day T-bill and a yield of 7.25% on the 182-day T-bill, both of which were above market expectations. There are slight concerns on the liquidity front, with RBI moping up bids worth only Rs 3,505 crore through the reverse repo auction of its liquidity adjustment facility.
In the foreign exchange market, intervention from the central bank caused the rupee to dip by 10 paise. The rupee ended the day at 39.58/59 against the dollar, down from Tuesday’s close of 39.48/49. The rupee had hit a high of 39.38 during the early part of the day, following which nationalised banks aggressively bought dollars.
“This could have been to cancel out the arbitrage opportunities at the dollar-rupee gap at the non-deliverable forwards market,” feels a trader with a private bank. Another view is that the central bank is anticipating a further bout of foreign inflows and is preparing for that.
Rates on the inter-bank call market opened at the day’s high of 8%. Trades worth Rs 25,099 crore was transacted on the call market, and the rates ended the day at 7.25% after touching a low of 6%. Rates in the market for collateralised borrowing and lending obligations ended the day at 6.82% after transactions worth Rs 43,800 crore were struck.
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The rates had touched a high of 7.25% during the day. Repo rates ended the day at 7.00% after transactions worth Rs 19,814 crore were carried out.
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