G-Secs Crash, 10-Yr Yield Breaches 6%

Mumbai, July 28 | Updated: Jul 29 2004, 06:21am hrs
Prices of government securities crashed by about Rs 1.10-1.20 on Wednesday over the previous close even as yield on the benchmark 7.37 per cent 10 year paper breached the 6 per cent-mark for the first time this year. The rupee depreciated by about 10 paise to close at 46.31/32 to the dollar as against the previous close of 46.22/24.

Better-than-expected US Consumer Confidence Index data fuelled fears that US interest rates may edge up further and this could have a knock-on effect on the domestic interest rates.

Government securities prices opened about 30 paise lower as compared to the previous close as the US bond yields overnight rose by 10 basis points.

The benchmark 10-year paper finished the day at an yield of 6.099% (Rs 109.20) as against the previous close of 5.954% (Rs 110.32). Yield on the 7.38% 2015 paper ended the day at an yield of 6.219% (Rs 109.20) as against the previous close of 6.077% (Rs 110.40).

In this market everybody, including the fleet-footed traders, will be making losses. Banks are trying to sell securities from the available for sale category so as to buy them back at lower levels, said a dealer.

Primary Dealers are the worst affected as they constantly churn their portfolio, which they fund out of call money borrowings. PDs, unlike banks, do not have a core portfolio of high-coupon securities that can absorb shocks on account of adverse movements in interest rates.

Meanwhile, the rupee weakened even as the greenback strengthened overnight against all global currencies. Heavy month-end demand from importers, especially oil companies, coupled with exporter cancellations compounded the rupees weakness. Further, dollar inflows were also very thin.

Opening a tad weaker at 46.27/29, the rupee hit a one-year intraday low of 46.3950 to the dollar during the course of the days trading. At the intraday low, foreign banks and nationalised banks sold heavily.

Outlook on the rupee is biddish. Dollar demand today outstripped supply, said a dealer and added that nationalised banks, apparently at the behest of the Reserve Bank of India, sold dollars at intraday lows to cap the upside. The dollar gained ground against all other currencies on account of the better than expected US consumer confidence index data.

Overall, the sentiment is against the rupee. There are concerns that on account of the rising crude oil prices, the opposition to foreign direct investment in telecom, insurance and civil aviation sectors, and lacklustre monsoon could see outflows from India, said the dealer.

The rupee premium on the forward dollar inched up, tracking the weak spot rupee. There was paying pressure in the forward segment of the foreign exchange market as importers panicked and took forward cover to hedge their future payments. The six months annualised forward premium closed the day at 2.50% as against the previous days closing level of 2.38%.