Trust vote win, declining oil drive up gilts

If the crude prices continue to soften, it will ease the inflation pressures and dissuade the Reserve Bank of India from taking further monetary action. This was the primary trigger for the bond market, according to a dealer.

Prices of the ten-year benchmark paper 8.24 per cent 2018 shot up by 63 paise and thus the yields came down from highs of 9.12 per cent on Tuesday to close at 9.02 per cent on Wednesday. Stray deals across maturities resulted in the prices moving up by 10-50 paise.

 

In the auction of the ten-year paper to be held on Thursday, the market expects the cut-off yield to range between 9.05 and 9.08 per cent.

The cash reserve ratio is the portion of the total deposits garnered by banks over a fortnight and deposited with the RBI as a statutory obligation. Out of the total funds to be maintained, a bank needs to maintain atleast 70 per cent on any given day of the fortnight. Repo is the rate at which the RBI lends funds into the market.

The bullish trend in the government securities also spilled over to treasury bills, which had witnessed lean volumes till date. At the auction held on Wednesday, the cut-off yield for the 91-day t-bill fell from highs of 9.10 per cent to 9.06 per cent. Similarly, the cut-off yield for 182 day t-bill also fell from 9.34 per cent to 9.31 per cent.

Dealers expect the market to witness brisk trading volumes in t-bills in the coming days. This is because the foreign banks are bringing in foreign exchange inflows on behalf of the custodian clients and these could be parked in t-bills till the equity market stabilises.