Slide In Gilt Yields Stanched, Forex Reserves Burgeon

The steep fall in yields in government securities and corporate bond markets was stemmed on Thursday as a senior central bank official expressed discomfort at the yield levels.

The benchmark 10-year gilt and the benchmark five-year corporate bond, which tested lifetime lows of 6.31 per cent and 6.35 per cent, respectively, on Thursday, were last dealt at 6.391 per cent and 6.38 per cent, respectively, on the last trading day of last week.

The rupee, which kicked off last week by ending at 48.2025/2075 per dollar on Monday, wrapped up the week on a weak note at 48.3050/3150.

Demand from state-owned banks, month-end purchases by oil companies, and demand from the government to meet its overseas debt obligations along with the dollar ruling strong against major global currencies led to the depreciation of the rupee.

 

The supply of greenbacks was only moderate. In the gilts market, players were gripped by nervousness as to the sustainability of the low yields. Though the market was down on Monday, it was up on the following three days.

The Reserve Bank of India (RBI), on Wednesday, raised the cut-off price at its weekly auction of 91-day treasury bills to Rs 98.74 from the previous Rs 98.67 rupees.

The yield at the cut-off price fell to 5.1183 per cent from 5.4065 per cent. The RBI also raised the cut-off price at its two-weekly auction of 364-day treasury bills to Rs 94.92 from Rs 94.67.

The yield at the cut-off price fell to a lower-than-expected 5.3666 percent from 5.6456 per cent. With one-year money costing less than one-day money (5.50 per cent), the market surged on Wednesday and early Thursday.

On Thursday, once yield on the 10-year paper touched a lifetime low of 6.31 per cent, the sentiment was dampened on account of comments by a senior RBI official to the effect that