Federal bond prices pare gains, call rate at 5.5%

Mumbai, May 17 | Updated: May 18 2006, 05:30am hrs
Indian federal bond prices gave up early gains to end lower on Wednesday, with the market nervous about the outlook for yields, volatile oil prices and a fall in U.S. Treasury prices. The yield on the benchmark 10-year bond ended at 7.59 percent, a shade up from Tuesday's close of 7.58 percent.

While on the other highly traded security 7.40% security maturing in 2012 ended the trading session at Rs 100.61 with the corresponding yields hovering around 7.27%. The 9.39% government stock maturing in 2011 closed at Rs 109.39 with yields ruling at 7.16%. The market is awaiting an announcement on the government's next bond issue which is scheduled between May 16 and 24. India's central bank calendar shows the government is scheduled to auction 50 billion rupees of bonds maturing in 15-19 years. "The cut-off yield in the next auction should give some direction to where bond yields in the secondary market could be headed," a trader with a primary dealer said.

A fall in prices of U.S. Treasuries on Wednesday also affected sentiment in the domestic bond market. Traders had been awaiting U.S. consumer price data due for release after the Indian market closed. In the event the CPI reading was stronger than expected and Treasuries fell, with markets edgy the U.S. Federal Reserve might raise interest rates again in June. The yield on the 10-year U.S. Treasury note rose to 5.15 % after the data, from 5.11% on Monday.

In the overnight call money market, the call rates closed stable at 5.5-5.6% indicating comfortable liquidity condition. This can also be evinced from the Reserve Bank of India (RBI) absorbing Rs 33,490 crore through its first reverse repo auction and another Rs 29,395 crore through its second reverse repo auction on Wednesday. The Indian rupee rebounded strongly against the dollar on Wednesday, pulling away from the previous session's six-month lows, helped by a recovery in the stock market and Asian currencies. The domestic currency closed at 45.1850/1950 per dollar, 0.7% from Tuesday's close of 45.5150/5300.

"It's only natural that the rupee gained as the local shares have risen and Asian currencies have clawed back significantly," a dealer said.