Bonds off 7-mth highs, Re eases

Mumbai, Nov 29 | Updated: Nov 30 2006, 09:18am hrs
Indian government bonds slipped from seven-month highs on Wednesday due to concerns about fresh supply from an upcoming debt auction and expectations of a squeeze in available cash as corporate tax payments fall.

The yield on benchmark 10-year bonds fell in early trade to 7.36%, its lowest since late April, sparking some profit taking after it had dropped about 15 basis points over the past two weeks. Finally, the yield ended at 7.40%, higher than Tuesdays close of 7.38%.

Quite a few people were sitting long and they lightened their positions, a dealer with a brokerage said. She said dealers were concerned about fund outflows to meet quarterly corporate tax payments by mid-December. A dealer with a private sector bank said that upcoming bond issues could also add to worries about available cash. Dealers said the market shrugged off a cut in retail prices of petrol and diesel by 4.25% and 3% respectively.

In the inter-bank call money market, the call rate ended between 6.10-6.20%. The Resere Bank of India absorbed Rs 2,235 crore through the first reverse repo auction and another Rs 9,690 crore through the second reverse repo auction under the liquidity facility adjustment facility on Wedenesday.

The Indian rupee ended slightly lower on Wednesday as traders suspected the central bank had bought dollars to check the rupees rise after the US unit weakened against major currencies.

The rupee ended at 44.69/44.70 per dollar, a shade down from the previous close of 44.68/69. It touched an intraday high of 44.63 after exporters and custodial banks sold dollars to cover positions.

However, state-owned banks bought dollars on behalf of the central bank to check the rupees gains, traders said. The RBI did not want the cross-currency movement to push up the rupee too much, said a dealer with a private bank. Traders said oil firms bought dollars through the session after US oil rose above $61 a barrel.

Indias trade deficit more than doubled to $6.21 billion in October from a year earlier, data showed on Tuesday, raising concerns about the countrys ability to finance it if capital flows shrink.