Govt papers gallop, rupee ranged, forwards founder
RECAP
| Selected buying in the benchmark papers led to government securities of longer maturity yield higher returns than the shorter ones. In the process, the yield curve is distorted. |
| During these times, public sector banks could not have a better time. These banks are usually the market-makers in times of interest rate turbulence. |
| This time they are busy avoiding any loss in trading portfolio before the quarter ends and awaiting signals, which could protect their bottomlines, from the central bank. |
| However, they are the happiest lot currently, as the benchmark interest rate for 10-year government securities is coming down without much action from them. The bond market is now managed primarily by primary dealers who after being stuck with losses in the last June quarter are leaving no stone unturned to being down the yields. |
| "There are four to five primary dealers who are aggressively quoting the benchmark government papers and this partial interest has made the yield curve is distorted. In the process, they are ignoring all facts about inflation, interest rate announced in the last few days," said a treasury head in the private bank. |
| However, the scene changed on Friday when public sector banks joined the trading and pulled down the ten year to 5.88 per cent. |
| This is because the RBI's guideline wanted the banks to provide for the loss incurred during the transfer of SLR securities from to held to maturity. |
| Bankers said the yield on June 30 ended at 5.84 per cent and therefore any level below it will be welcome to the extent, the investment portfolio does not incur any loss while marking to market the portfolio. Marking to market is an exercise which is done to evaluate the gilts kept for the trading purpose as per the current market price. |
| In the process, the rate of return for various government papers are not in sync with the maturities. Hile the ten-year paper is trading at 5.99-6.02 per cent, nine-year gilt is being offered in the market for 6.19 per cent. |
| Similarly, in the shorter end, four year paper is trading at 6.07 while five year is at 5.84 per cent. In the longer end of the maturity curve, 19-year paper is at 6.70 percent whereas 17-year is yielding 6.70 per cent. The prices in the medium term papers, which are the most-traded ones, went up by above Rs 1.30. |
| The forex market, on the other hand, remained rangebound during the week and spot rupee dollar exchange rate hovered around 46.30/35 to a dollar. |
| Secondly, the market is bullish that inflation from next week onwards will start moderating with base effect and global hike in interest rate might be subdued with weak economic and employment data being expected from the US. |
| Premiums in the currency forwards market dipped. Annualised premiums on six-month and one-year dollars closed at lower at 1.95 per cent and 1.72 per cent compared with 2.15 per cent and 1.86 per cent respectively on Thursday. |