Bonds trade weak after borrowing announcement

MUMBAI: The rupee posted its worst performance in a month - heavy losses in the domestic share market, demand from oil importers and the dollar's strength against other major currencies overseas taking toll.

It ended at 51.17 against the dollar from its Friday close of 50.69. BSE Sensex ended down close to 5%. Bonds ended weak on the first day after the government announced the borrowing programme for the new fiscal, with the yield on the benchmark 10-year paper rising 12 bps to trade at 7.07%.

"Although the amount of buy backs announced by the RBI look sufficient, a lot will depend on the choice of bonds and the timing of operations," says Prasanna Patankar, senior vice president at STCI Primary Dealership. "The mood is not very good and yields could rise from here," he added.

After market hours last week, RBI said it would buy back Rs 80,000 crore of bonds between April and September and said MSS bonds of nearly Rs 42,000 crore will mature in this period, to buttress the liquidity in the system.

Traders say that RBI Deputy Governor Rakesh Mohan���s statement that there will be no private placement of bonds also brought in further bearishness in the market. They add that bonds will remain under pressure in the coming days.
RBI will auction Rs 12,000 crore of bonds on April 2, the central bank said in a statement on Monday.

Dealers say the trend for the rupee is still unclear. The dollar and yen rallied on Monday as fears of bankruptcy for US automakers General Motors and Chrysler prompted anxious investors to cut exposure to riskier emerging market assets. Dealers also said month-end demand for the dollar from importers and oil refiners weighed on the rupee.

Banks parked Rs 31,155 crore with the central bank in its money market operations on Monday, while select banks also borrowed Rs 2,225 crore showing a light pressure on cash surplus in the system. Call money closed at 3.75%, off an early high of 5.10%, and below Thursday's close of 4.40%.