Indian money markets appeared bullish on Thursday. Various factors like a drop in the inflation rate, large scale government spending and the upcoming general elections are paving the way for a better business atmosphere in the money market.
On Thursday, the 10-year benchmark bond yield ended at 6.46%, 17 bps below Wednesday?s close of 6.63%, after touching an intra-day low of 6.44%, its lowest since October 2004.
?Liquidity is comfortable for now and we expect bond yields to head further southwards,? said S Srinivasa Raghavan, vice president and head of treasury at IDBI Gilts.
?Over a period of time, we can expect bond yields to touch 6.25%,? he added.
D Subbarao, governor of the Reserve Bank of India (RBI), has indicated that the central bank wants a low rate scenario; the bank might aggressively lower key rates to boost an economy slowing more sharply than expected, he had indicated.
?With the economy going through a rough phase, and inflation sliding, we can expect more rate cuts from the central bank,? said a dealer with a public sector bank. ?This will further lead to a slash in bond yields,? he added.
Corporate advance tax outflows scheduled on December 17 may not impact much as liquidity is adequate, say dealers. It is likely to suck out Rs 30,000 crore from the system.
IIP data, which will be released on Friday at noon, is gathering negative sentiments from the market.
?Players expect just about 2% in the IIP October data. With a slowdown in inflation and growth, we will see a further spike in bonds. Government spending is very high, leading to a comfortable liquidity situation,? said Raghavan.
Wholesale price index rose 8% for the week ended November 29 from a year earlier, less than 8.4% from the previous week.
The call money market too is expected to remain on the low side as liquidity looks comfortable and no big outflows are scheduled, said dealers.
On Thursday, the one-day call rate ended at 5.15-5.20%, compared to Wednesday?s close of 5.10-5.15%.
Banks parked Rs 31,665 crore with both RBI tenders on Thursday, as against Rs 27,370 crore on Wednesday.
Meanwhile, results of the auctions of 7.55% government stock, 2010 (repurchase) and 5.87% government stock, 2010 (repurchase) under MSS held on December 11, 2008 saw a cut-off price of Rs 102.76 and Rs 100.75 respectively. The notified amount was Rs 5,000 each. Competitive bids received were 38 and 53 respectively.
Bond strength
• On Thursday, the 10-year benchmark bond yield ended at 6.46%
• It was 17 bps below Wednesday?s close of 6.63%
• Subbarao has indicated that the central bank wants a low rate scenario
