Bonds recoup losses as banks go shopping

MONEY MARKET ROUND-UP

Government bonds recouped almost all intraday losses today as banks’ bought to protect portfolio valuations ahead of the half-yearly closing of accounts on Tuesday, dealers said.

The 10-year benchmark 8.24 per cent, 2018 paper ended the day at Rs 97.56 or 8.6177 per cent yield, compared with Rs 97.73 or 8.5914 per cent on Friday. Earlier in the day, the 2018 paper had slipped to a low of Rs 96.86 as investors had sold on oversupply fears.

Of the Rs 39,000 crore the government is scheduled to raise in October-March of the current financial year, Rs 20,000 crore are due to be raised in October alone. According to gilt dealers, value buying by some investors in whose opinion today’s early selling was overdone helped gilts recoup losses.

Liquidity remains tight
Today, the two-day call money rate settled at 15.75-16.00 per cent, up more than 400 basis points up from Saturday’s closing of 11.00-11.50 per cent. Overnight cash rates rose on Monday, approaching highs seen earlier this month, as debt sales by the government drained liquidity from banks.

Tight liquidity was evident from the fact that banks borrowed over Rs 90,000 crore from the Reserve Bank of India through the two liquidity adjustment facility operations.

The banking system has been reeling under a cash shortage after companies paid an Rs 40,000 crore as quarterly advance tax payments earlier this month, forcing the central bank to add money through repos.