Bond market to witness high volatility

Mumbai, Mar 30 | Updated: Mar 31 2007, 05:55am hrs
The monetary measures announced by the Reserve Bank of India (RBI) are likely to set the bond market on fire at the beginning of the financial year 2007-08. Fund managers are not surprised by the action of the central bank but it is the timing which has surprised everyone. The action by the RBI is in line with the stated stance of the monetary policy. The action per se is not surprising but the timing of the action is a big surprise. The g-sec market will react negatively to some and we can see an initial rise of 10-15 basis points in the yields, aid Mukund Kannappan, senior fund manager, Standard Chartered Asset Management Company. He also highlighted that there was still hardening bias in the existing stance of the monetary policy.

Experts opine that the cash reserve requirement (CRR) hike and the market stabilisation scheme (MSS) auctions will sterilise the liquidity inflow into the system because of much awaited government expenditure which is expected to happen soon. The central bank has also made state bonds eligible for repo funds, which will widen the collateral base of banks for raising funds through the repurchase auction.

The monetary measures taken by the RBI came as a huge surprise element. In general, the g-sec market was slightly heavy and bullish. Immediately, there will be some shock element at the beginning of the next financial year, said Nand Kumar Surti, chief investment officer, JP Morgan AMC.