Gilts Volumes At All-Time High

Volumes in the wholesale debt market increased to a record Rs 9,759.22 crore today, even as the yield on government securities hit new lows on a sudden surge in domestic liquidity.

The yield on the benchmark 10-year, 9.81 per cent paper dipped to a historic low of 5.78 per cent but closed at 5.79 per cent on profit-booking.

It closed at 5.8278 per cent yesterday. The 15-year, 8.07 per cent 2017 paper was down to 5.9698 per cent but closed at 5.9746 per cent, against the previous close of 6.0058 per cent.

A combination of factors set off the liquidity surge, but it was the foreign exchange operations of the Reserve Bank of India (RBI) that dominated the inflows.

The RBI bought over $400 million in the last two days, releasing an equivalent amount of rupees into the system. Its repo window today attracted bids worth Rs 23,125 crore.

Other factors that contributed to the rise in gilt prices were the recommendation to cut the interest rate on the Employees' Provident Fund to 8.5 per cent and the decision to bring down prices of petroleum products.

Corporate bonds also saw good volumes, which dealers attributed to a lack of new issues in the market. Bonds issued by oil companies and the Unit Trust of India were in demand, owing to their quasi-sovereign status and repo eligibility.

According to dealers, the cheaper dollar is driving companies to opt for dollar-denominated borrowing, and hence, there are no fresh primary issues.

This triggered buying interest in the existing papers. The 6.4 per cent, 2007 bond of Hindalco Industries was quoted at 5.5/55 per cent, against the previous day's 5.6 per cent.