Re up by six paise, yields come off a tad

Mumbai, Jan 28 | Updated: Jan 29 2005, 06:15am hrs
Yields on government securities came off a tad on Friday on the back of the thaw in the inflation rate.

The trading sentiment was, however, overshadowed by the fact that the US Federal Open Market Committee (FOMC) is scheduled to meet early next week to take a call on hiking the signal Fed Funds rate by 25 basis points, and that the Reserve Bank of India is expected to announce auction of a 15-19 year gilt for Rs 5,000 crore shortly.

Yield on the benchmark 7.38% 2015 gilt ended the day two basis points lower at 6.733% (Rs 104.84) as against the previous close of 6.753% (Rs 104.68).

The wholesale price index (WPI) based inflation eased to 5.42% in the week ended January 15 as against 5.60% in the preceding week.

The gilts market is shallow. Trading volume is only around Rs 2,000 crore. This is so because most of the banks have transferred government securities from the available for sale (AFS) bucket to the held to maturity (HTM) bucket. Hence, the size of the AFS bucket has shrunk drastically, resulting in banks not having enough securities to trade, said a dealer with a public sector bank.

The benchmark 10-year gilt could edge up by around 10 paise on Saturday, driven by ample liquidity, said the dealer.

Call money ruled easy and finished in the 4.60-4.80% band, unchanged from the previous close.

That the banking system is having adequate liquidity is underscored by the fact that the Reserve Bank of India received and accepted all the 31 bids, aggregating Rs 14,760 crore at the three-day reverse repo auction at the fixed rate of 4.75%.

After opening a tad weaker at 43.80/81, the rupee ended the day stronger by about six paise at 43.7200/7250 to the dollar as against the previous close of 43.7800/7900.

Though the greenback ruled strong against the euro and pound sterling, it lost ground against Asian currencies.

The possibility of revaluation of the Chinese yuan, coupled with the 180 points gain in the bellwether BSE Sensex, were positive factors for the Indian unit.