Bond yield at new low, Re plunges

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Mumbai Sep 9: Bond yields eased to their lowest since mid-June on Tuesday on the Reserve Bank of India’s (RBI) comments that inflation was showing some signs of moderation, lower global oil prices and buying for statutory requirements.

The 10-year benchmark bond yield ended at 8.39%, its lowest since June 18, according to data, down from 8.50% on Monday. Volume was nearly Rs 8,000 crore. The RBI’s new governor, D. Subbarao, said while double-digit inflation rate was showing some signs of moderation; it was too early to conclude whether or not it represented a “discernible trend”. Annual inflation was 12.34% in late August, down from a peak of 12.63% earlier in the month.

“His comments made a few banks bullish,” a senior trader with a foreign bank said.

Others said there was not much new in the comments, and said there was buying to meet the statutory liquidity ratio, which requires Indian banks to invest at least a quarter of their deposits in government bonds.

“Banks are buying to meet SLR requirements on any statement that comes,” Anoop Verma, associate vice president at Development Credit Bank, said.

Lower oil prices also lifted sentiment on expectations that it would ease inflationary pressures and the likelihood of further interest rate increases. Crude was trading around $104 a barrel on Tuesday, extending a slide from a record high above $147 in mid-July. India imports about 70% of its oil and an increase in state-set retail prices in June had propelled inflation into double digits.

Meanwhile, the rupee dropped to fresh near two-year lows on Tuesday, weighed down by the dollar's broad strength against a basket of currencies, but central bank intervention checked a sharper decline.

It ended at 44.84/85 per dollar, 0.5% weaker than Monday's close of 44.60/61 but a shade stronger than an intraday low of 44.93, a level it last tested in late November 2006.