Bond yields ease on lower oil prices, Re flat

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Mumbai, Aug 8: On Friday, bond yields ended lower as easing oil prices on world markets calmed inflation concerns and lower cut-off yields in a government bond auction bolstered sentiment.

The 10-year benchmark bond yield ended at 9.03%, off an early peak of 9.14% and 7 bps below Thursday's close. Volumes were normal at Rs 4,170 crore.

"Fall in oil prices gave hope to the market that this trend would sustain in the coming days," a trader with a foreign bank said.

Oil slid below $118 a barrel, down more than $2. Lower oil prices ease pressure on the government to raise state-set fuel prices, which impact inflation.

Data on Thursday had shown annual inflation at 12.01% in late July, the highest since the current series became available in 1995, and the yield had climbed in early trade on inflation concerns and in anticipation of the bond auction later in the day.

But the result of the $2.4 billion tender boosted sentiment. The central bank auctioned 8.24% bonds maturing in 2018 for Rs 6,000 crore and 7.95% bonds maturing in 2032 for Rs 4,000 crore during the day.

It sold the 10-year bond at a yield cut-off of 9.14%.

Meanwhile, the rupee erased early losses to end almost unchanged on Friday, buoyed by heavy dollar selling by a large foreign bank and a firm stock market finish.

It ended at 42.0650/0750, a shade stronger than Thursday's finish of 42.075/080.

It recovered half a percent from an intraday low of 42.29. For the week, it is up 0.66%.

"A large foreign bank dumped dollars around the 42.20 per dollar mark and that has led to a lot of stop losses being triggered," said a dealer at a state-run bank. Two other dealers said a big foreign bank sold dollars likely on the behalf of a company.

A higher finish on the stock market also calmed outflow worries, which have helped knock the rupee down by more than 6.3 percent so far this year.

Foreigners have bought $230 million worth of shares so far in August after selling more than $307 million in July.

Indian shares rallied late on Friday to their highest close in almost eight weeks, but trade was choppy after inflation topped 12% for the first time in 13 years and raised more monetary tightening worries.

Softening oil prices also calmed worries of a widening trade deficit. Oil was quoting around $118 per barrel.

One-month non-deliverable forward contracts were quoting around 42.27/742.33 weaker than the onshore rate.