The bond market corrected on Friday as the yields fell to their lowest in two weeks after a decline in oil prices tempered concern inflation will accelerate. India?s 10-year bond at 9.09% (off an early trough of 9.06%) completed their best week in more than 3 1/2 years which was its lowest since July 4. It had ended at 9.22% on Thursday, and a week ago it hit a seven-year high of 9.55%.
Bond volumes were at Rs 3,945 crore on the central bank?s trading platform. The benchmark yield dropped to the lowest level since July 3 as crude oil in New York was poised for the biggest weekly slide since December 2004 in percentage terms. Bonds rallied for a third day after a government report yesterday showed inflation accelerated at a pace slower than the median estimate in an economists? survey. ?The decline in oil has had quite a positive impact on bond-market sentiment this week,? said S Ananthanarayan, chief trader in Mumbai at Kotak Mahindra Bank. ?Inflation may start stabilising now, albeit in a high zone.? The yield on the benchmark 8.24 % note due April 2018 this week slid 34 basis points, or 0.34 percentage point, to 9.09 %. The price climbed 2.04 rupee per Rs 100 face amount to 94.54. The drop in yield is the most since the week ended December 4, 2004.
Crude oil futures tumbled 10.5% this week after touching an all-time high of $147.27 a barrel in New York on July 11. Inflation will moderate by the end of the year, Finance Minister Palaniappan Chidambaram told the Press Trust of India news agency today.
Economic growth may exceed 8 % in the year through March, he said. The five-year fixed swap rate, which investors must pay in exchange for receiving a floating rate, fell to 9.50%, from 9.735% yesterday. However, the market awaits the second tranche of the 25-basis-point increase in the cash reserve ratio which will take place on Saturday. On July 24, the government would sell 2018 bonds for Rs 6,000 crore.
