Govt bonds at 3-week high, Re ends at 44.44/$

Mumbai, March 21 | Updated: Mar 22 2006, 06:23am hrs
Indian federal bonds came off their highest in nearly three weeks on Tuesday as investors booked profits after two straight sessions of gains, but traders expect cash supplies to improve in the next few days and check losses.

The government, which has collected Rs 25,000-30,000 crore (approx $5.6-6.7 billion) from advance taxes, is expected to boost spending before the financial year-ends on March 31. The spending takes place through the banking system, leaving banks with surplus cash. The yield on the active 8.07% 2017 bond inched up to close at 7.38% from 7.37% in early trade, which was its lowest since February 27. It ended barely changed from the previous close, having eased nearly three basis points since the start of the week. Most of the gains were lost due to a bout of profit-taking, said a trader at a securities firm. Liquidity is still a bit tight, but we are expecting that to ease in the coming days due to government spending.

Overnight inter-bank funding costs ended at 7.0-7.25% unchanged from the previous close but above the 5.5% level normally seen when funds are ample. The rate has come under pressure in the past few sessions on advance tax outflows. Expectations for improved cash supplies and the absence of fresh issues in the pipeline are likely to support bonds in the near term, analysts said, despite a central bank report suggesting more interest rate increases were in store.

Meanwhile the RBI in its first LAF infused Rs 2,860 crore through its repo auction window and absorbed Rs 100 crore by way of reverse repo mechanism. While in the second LAF RBI has injected Rs 75 crore, at a rate of 5.5% and mopped Rs 3215 crore at rate of 6.5%.

The rupee ended lower on Tuesday as state-run banks bought dollars at the behest of the central bank, absorbing foreign investment flows, traders said. The partly convertible rupee ended at 44.4350/4450, 0.07% lower than the previous close of 44.4025/4125. The central bank was around all the time. They were bidding at higher levels driving the rupee from 44.39 levels all the way up to the closing level, said a dealer at a foreign bank.

India received $4.34 billion in foreign direct investment between last April and January, and the government expects the figure to top $10 billion for the 12 months to March 31, 2006. On the forward market front, the annualised dollar premium shot up on Tuesday.