Cautious Optimism

Even as the debt market saw a lot of turbulence last quarter, softening bias persists

The first quarter of the current fiscal has been eventful, to the say the least, for the debt markets. Spiralling war tensions, a gilts scam and a disappointing credit policy lead to falling volumes and yields climbing up. With war fears receding and liquidity concerns easing, the market outlook for the coming months remains positive.

However, market players are cautiously optimistic as they continue to keep an eye on inflation as the economy is showing signs of revival. Even a slight tightening in liquidity could adversely affect gilt prices.

 

The first month of the quarter started on a positive note with a well-spaced out auction calendar announced by Reserve Bank of India (RBI). The liquidity surplus in the system ensured an overwhelming response to the auctions.

Rising international crude prices remained a cause for concern for bond traders. This coupled with the political uncertainty over the Gujarat debacle dampened sentiments. However, bargain purchases at lower levels due to abundant liquidity and positioning ahead of credit policy lent support to gilt prices.

The emphasis of this year