Fed hike weighs heavy on domestic bond mart

Mumbai, Nov 11 | Updated: Nov 12 2004, 06:19am hrs
The overnight hike in US interest rates by 25 basis points has impacted the domestic bond market, amidst possibility of a similar rise in interest rates in the country and a fresh surge in global oil prices.

The US Federal Reserve increased a key short-term interest rate by one-quarter percentage point, the fourth increase this year.

It is part of a credit tightening campaign in the US to bring rates back up to more normal levels, now that the economys recovery from the 2001 recession is more deep rooted.

Fed chairman Alan Greenspan and his federal open market committee colleagues who set the interest rate policy in the US on Wednesday increased the target for the federal funds rate to 2% from 1.75%.

Even as key bonds across the spectrum fell by 25-75 paise on a fresh round of selling, driven-down by interest rate uncertainties after the Fed raised interest rates, leading banks are waiting to hike their home loan rates and deposit rates once the festive season ends.

The US Fed hike will definitely add to the pressure for increasing the rates, said the chairman and managing director of a public sector bank.

A fresh rise in global oil prices to nearly $49 dollars a barrel due to supply constraints and a liquidity crunch at the call money market, also weighed on bond values.

The 11-year 7.38% 2015 stock dipped by 35 paise to Rs 101.00/10 with the yield rising by six basis points to 7.25% and the 7.37% 2014 bond slid to Rs 100.90 from Rs 101.45/50 yesterday.

The Feds current rate-raising campaign began in June with a quarter-point boost, marking the first rate increase in four years.

The Fed bumped up rates again by a quarter-point in August and September and then once more on Wednesday.