Bonds rise on auction hopes

Mumbai, Jan 19 | Updated: Jan 20 2007, 06:07am hrs
Indian 10-year bonds edged up on Friday as speculation that a scheduled debt auction would be cancelled due to a cash squeeze saw the market reclaim losses suffered after the inflation rate hit a two-year high.

But following the market close, the government said that it would auction Rs 5,000 crore of 14-year bonds on January 25. The bond maturity was shorter than the 15-20 year band indicated in the governments auction calendar.

The yield on the benchmark 10-year ended at 7.79%, down from Thursdays close of 7.83%. The yield had hit a high of 7.87% after data showed the wholesale price index rose 6.12% in the 12 months to January 6 the largest rise since the end of 2004.

Bonds rallied from the days lows on expectations that the auction will be cancelled, a dealer with a foreign bank said. Dealers said that the inflation data, along with blistering credit and money supply growth, fuelled expectations of an interest rate increase at the next monetary policy review on January 31.

In the inter-bank call money market, the call rate hovered in the range of 7.70-7.90%. The RBI through its liquidity adjustment facility injected Rs 12,075 crore under its repo auction and absorbed just Rs 265 crore under reverse repo auction on Friday.

The Indian rupee rose on Friday as exporters sold dollars, but its gains were capped by suspected central bank intervention, traders said. The rupee ended at 44.26/27 per dollar, off an intraday high of 44.25 but firmer than the previous close of 44.335/345. Apart from the state-run banks, oil firms also bought dollars as global crude prices traded just above 20-month lows.

The central bank sold rupees through state-run banks between 44.26 and 44.30, but it wasnt the aggressive selling we saw yesterday, said a head trader at a foreign bank. It looks like 44.20 is a level the central bank is trying to protect, and it enters when the market approaches that level, he added.

Export-oriented companies such as Satyam Computers Services and Infosys Technologies have said that the rupees strength in the December quarter had affected their earnings.