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| Yields rise on policy buzz, higher cut-off |
| BS Reporter / Mumbai Dec 19, 2009, 00:35 IST |
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Government bond yields rose today following a meeting between Union finance minister and Reserve Bank of India governor along with higher cut-off set (on yield) at the bond auction. Both these factors set the market abuzz with talks of an imminent monetary tightening.
Dealers said the market trend was soft in the morning, but the news about RBI Governor D Subbarao’s meeting with Finance Minister Pranab Mukherjee to discuss macroeconomic conditions raised speculation about the hardening stance. Further, a steep rise in food inflation at 19.95 per cent was also a concern.
The yield on the 10-year paper (6.90 per cent 2019 paper) moved up to close at 7.71 per cent against its previous close of 7.64 per cent, according to the Negotiated Dealing System. At the bond auction, RBI set the cut-off yield for the floating rate bond (2020) at 4.85 per cent. This is about 106 basis points (bps) higher than the coupon rate of 3.79 per cent applicable for January-June 2010. Market expected the cut-off to be 40-60 bps higher.
higher than the coupon set for the floating rate bond.
The seven-year paper (7.02 per cent 2016 paper) on offer as part of the bond sale was partly sold. Traders said the auction reflected a lack of market appetite for debt as there was too much uncertainty about the monetary policy.
Corporate bond yields were steady, but dealers said the bias was upwards, tracking government bonds on concerns of an imminent tightening in the central bank’s easy monetary policy stance.
Today the government bond market was reacting to expectations of a rate hike, but there was no clear news and since the corporate bond market is so illiquid, we have to think twice before taking fresh positions, they added.
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