Bonds rise on duty cut
MARKET ROUND-UP
| Yields on 10-year debt dropped from the highest in more than four months after the finance ministry cut customs levies on primary and semi-finished metals to 5 per cent from 7.5 per cent, halved it on chemicals to 5 per cent, and removed the levy on portland cement. |
| "Bonds are gaining today because the duty cuts have raised expectations of a more benign inflation trend,'' said Sanjeet Singh, a fixed-income trader at ICICI Securities, a primary dealer that underwrites government debt sales. |
| The yield on the benchmark 8.07 per cent note due January 2017 fell 2 basis points, or 0.02 per cent, to 7.87 per cent, according to the central bank's trading system. The price, which moves inversely to the yield, rose 0.17 per cent, or 17 paise per 100 rupee face value, to 101.34. |
| Finance Minister Palaniappan Chidambaram today said the government cut import duties on cement, copper and chemicals a month earlier than planned after inflation surged to a two-year high. |
| Chidambaram wants to slow inflation to below 4 per cent as it faces seven state elections in 2007, the most important being Uttar Pradesh, which sends almost a seventh of lawmakers to the Parliament. |
| Inflation rate rose to a two-year high in the first week of January, as the fastest growth in bank loans in three decades and record salary increases spurred demand for manufactured and other products. |
| Wholesale prices rose to 6.12 per cent in the week ended January 6, the highest since December 25, 2004, from 5.58 per cent in the previous week, the ministry of commerce and industry said on January 19. |
| Interest Rates Bond gains were limited by speculation the central bank will increase its 7.25 per cent benchmark interest rates this month to curb inflation. The Reserve Bank of India, which raised its overnight lending rate four times in 2006 to slow price rises, is scheduled to review its policy on January 31. |
| "More and more people are now expecting interest rate increases and the possibility is quite high now,'' said Arun Kaul, treasurer at state-owned Punjab National Bank in New Delhi. |
| "The bond market sentiment will turn negative and prices fall if the central bank raises rates.'' |
| The gain in bonds was also curbed following a government decision to go ahead with a debt auction this week, quashing speculation the sale will be scrapped. |
| "The market sentiment is bearish because there were expectations about the auction getting cancelled,'' Punjab National's Kaul said. |
| The government will sell Rs 5,000 crore of bonds due in 2021 on January 25 as part of its annual borrowing programme. |
| Rising tax receipts and the government's decision to reduce its borrowing by more than half at its previous auction on January 12 fuelled speculation it would refrain from selling debt this week. |