After two days of gains, the government securities market crashed yesterday with prices of long-term paper falling by almost 50 paise. | |
| The earlier bullish sentiment was marred by the Bank of England's decision to raise its base rate by 25 basis points (one quarter percentage point) from 3.75 per cent to 4 per cent. The Bank of New Zealand had raised its base rate last week. |
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| The Bank of England's base rate hike has been perceived by the market as a strong signal that interest rates around the globe are firming up, and could firm up in India too. |
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| According to Partha Mukherjee, Treasury head,UTI Bank, it would be premature to assume that there would be a complete reversal of interest rates immediately. |
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| "However, going further, eventually we might see a possible firming up of rates," he said. |
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| The Bank of England's action was taken seriously by market players as last week the Federal Reserve of the US had virtually signalled a gradual firming up of interest rates, said a dealer. |
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| Bond prices fell across the board, with prices of medium term papers falling by 20-30 paise. The yield on the 10-year benchmark 7.37 per cent 2014 closed at 5.20 per cent today against 5.17 per cent on Wednesday. |
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| The market had been seeing a rally over the last two days following the interim budget which estimated the fiscal deficit at 4.8 per cent and year-end inflation at 4-4.5 per cent. |
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| After the news of the Bank of England rate hike, major players liquidated positions to stay in cash. |
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| If the weekend inflation figure is positive, the market might see some buying demand. Otherwise, another round of major selling is expected, with prices falling further and the yield on 10-year paper rising to 5.22-24 per cent. |
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