Bonds, rupee give up early gains
Both bonds and the rupee gave up their early gains to end largely unchanged on Wednesday, the day after RBI cut the repo and reverse repo rates.
By ET Bureau |
MUMBAI: Both bonds and the rupee gave up their early gains to end largely unchanged on Wednesday, the day after RBI cut the repo and reverse repo rates. While the rupee ended 10 paisa stronger at 50.33, the 10-year bond yield ended unchanged at 6.18%.
The yield had dropped to 6.04% during the course of the day, bond traders were cheered by RBI���s statement that it is committed to buy back of bonds from the market.
The central bank���s decision to cut interest rates yesterday may help the government reduce borrowing costs as it plans to sell record amounts of debt in this fiscal year.
"Banks are back to buying table to increase their SLR levels, with all the deposits they have been mopping up," says a dealer at Axis Bank.
"There were a lot of redemptions of bonds too in the last week, this money too is coming back in the system. Mutual funds are also back in the game with inflows in their funds rising," he added.
Nomura Financial Services says that the key challenges facing the RBI are managing of the government���s large market borrowings, keeping bond yields low and ensuring further pass-through of rate cuts to the broader economy.
RBI will buy back bonds worth Rs 6,000 crores on Thursday. It has committed to buying Rs 80,000 crores of government bonds through open market operations in first half of this fiscal.
The rupee pared gains in afternoon trade on Wednesday as shares came off earlier highs and the key index - BSE Sensex fell 0.75% - but gains in other Asian units against the dollar affected sentiment. The rupee���s close was off an earlier high of 50.05, but still stronger than its previous close of 50.43.
The rupee had dropped to its lowest level in two weeks on Tuesday after the central bank reduced interest rates in its annual policy review. However, the rupee is sharply up from a lifetime low of 52.20 hit in early March as the stocks rebound drew foreign funds.
The yield had dropped to 6.04% during the course of the day, bond traders were cheered by RBI���s statement that it is committed to buy back of bonds from the market.
The central bank���s decision to cut interest rates yesterday may help the government reduce borrowing costs as it plans to sell record amounts of debt in this fiscal year.
"Banks are back to buying table to increase their SLR levels, with all the deposits they have been mopping up," says a dealer at Axis Bank.
"There were a lot of redemptions of bonds too in the last week, this money too is coming back in the system. Mutual funds are also back in the game with inflows in their funds rising," he added.
Nomura Financial Services says that the key challenges facing the RBI are managing of the government���s large market borrowings, keeping bond yields low and ensuring further pass-through of rate cuts to the broader economy.
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RBI will buy back bonds worth Rs 6,000 crores on Thursday. It has committed to buying Rs 80,000 crores of government bonds through open market operations in first half of this fiscal.
The rupee pared gains in afternoon trade on Wednesday as shares came off earlier highs and the key index - BSE Sensex fell 0.75% - but gains in other Asian units against the dollar affected sentiment. The rupee���s close was off an earlier high of 50.05, but still stronger than its previous close of 50.43.
The rupee had dropped to its lowest level in two weeks on Tuesday after the central bank reduced interest rates in its annual policy review. However, the rupee is sharply up from a lifetime low of 52.20 hit in early March as the stocks rebound drew foreign funds.
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