The upward sojourn continued on Friday as RBIs governor Bimal Jalan expressed discomfort with the falling yields on G-Secs. The market become extremely bullish following Dr Jalans remark that the RBI would not intervene in the price movement.
With Dr Jalans statement, yields fell sharply at the medium and longer-end. The benchmark 10-year yield at 7.40 per cent 2012 paper was seen at 7.02 per cent, at a new all-time low. Prices at medium-end rose by around 30-50 paise while at the longer-end, prices rose by 40-50 paise. Large buying were seen particularly at the medium-end. The benchmark 7.40 per cent 2012 paper closed at Rs 102.52, up by 22 paise as compared to Thursdays level. It was, however, seen higher at Rs 102.60 but came off its early highs at close.
Prices also witnessed smart rally, following overwhelming responses for the Rs 4,000 crore auction at the 7.46 per cent 2017 paper. The paper auctioned at a price of Rs 100.79 (yield-to-maturity at 7.3702 per cent). The RBI set the weighted average cut-off price at Rs 100.95, well above market levels which strengthened the rate-cut expectation.
Yields eased to their successive lows during the week. On Thursday, the benchmark 10-year paper was dealt at its new low of 7.0632 per cent, falling below its previous trough of 7.0712 per cent hit on Monday and compared with Wednesdays close of 7.0811 per cent. Liquidity remained comfortable throughout the week despite the auction outflow of Rs 4,000 crore. There were fresh inflows of Rs 1,341 crore on Wednesday due to the redemptions of the 6.50 per cent 2002, 11.75 per cent 2006 and 9.75 per cent 2015 papers. There was another bout of inflows of around Rs 500 crore on Saturday.
There will be sufficient liquidity this week and will be further buoyed by the inflows of Rs 1,000 crore on Monday and Rs 1,300 crore on Tuesday. Liquidity will remain comfortable before the credit policy as there is no auction in between, a dealer said.
Call rates were ranged during the week. They opened the week tight as market players took two-days positions ahead of Tuesdays holiday. On Thursday, call rates were up on outflows towards the 15-year bonds auctioned the previous day. The rates eased towards the end of the week on receding demand for funds as most borrowing banks had covered up their reserve positions well ahead of the reporting period.
The rupee started depreciating against the dollar towards the end of the week. It closed the week at 48.3950/4050 per dollar. The rupee, which is now fairly valued on a trade-weighted basis, has lost 0.1 per cent in the week. Companies stepped up dollar purchases starting on Thursday after a huge private-sector companys mid-week demand caught the market by surprise and pulled the local currency down.