Govt bonds end a rupee lower

Government bond prices ended down by over a rupee On Monday because investors continued to trim holdings after the sharp rise in last few weeks, dealers said.

In just last two weeks, the price of most traded 10-year benchmark 8.24, 2018 bond rose by almost Rs 10 primarily on hope that Reserve Bank of India would reduce interest rates further.

“Players are just booking profits after a sharp rise in past few days. But I think, the resistance for 2018 paper will come into play around 5.75 per cent level,” said S Srinivasa Raghavan, head of treasury, IDBI Gilts.

On Monday, the 2018 paper settled at Rs 118.078 or 5.7119 per cent yield to maturity, compared with Rs 119.30 or 5.5597 per cent on Friday.

Gilt dealers said news that the government was likely to surpass its planned gross market borrowing of Rs 1.9 lakh crore in the current financial year because of additional spending added to the selling pressure.

The additional spending is primarily on account of the fiscal stimulus package announced earlier this month.

“Market sold more after parliament approved of the extra spending. But hope that interest rate cut will come at Reserve Bank of India’s credit market policy review should prevent further sales,” said a dealer with a private bank.

But the absence of any big gilt auctions this week lent support to market sentiment, dealers said.

In addition, the lack of strain on liquidity despite the corporate advance tax outflow also helped to limit the fall in prices.

Around Rs 30,000 crore are estimated to have moved out of the banking system last week as payment of third instalment of corporate advance tax for the current financial year.

Call: Ends down
Call money rate ended down On Monday because the initial demand for funds subsided with liquidity staying comfortable, dealers said.

One-day call rate ended at 6.00-6.10 per cent, compared with 6.50-6.60 per cent on Saturday for two-day loans.

CBLOs ended at a weighted average rate of 5.31 per cent, compared with 6.09 per cent on Saturday.

“Many public sector banks are sitting on excess cash and so there is enough supply in the market,” said a dealer at a state-owned bank.

Some dealers said government spending was witnessed On Monday, which kept liquidity comfortable in the system.

Also, demand for funds was slightly lower than what is typically witnessed in the first week of a Reporting Fortnight, dealers said.