Bonds re­bound as yield lev­els at­tract buy­ers; R drops

The Financial Express - - MONEY & MARKETS -

Dec 30: 10-year bonds re­bounded af­ter their worst weekly loss in seven on spec­u­la­tion higher yields at­tracted in­vestors. The ru­pee dropped.

The rate on the 8.83% sov­er­eign notes due Novem­ber 2023 rose 16 bps last week to 8.96%, the high­est level for bench­mark 10-year debt since Novem­ber 22. That prob­a­bly drew buy­ers, ac­cord­ing to Bank of Nova Sco­tia.

The RBI left the re­pur-chaser­ateat 7.75% on De­cem­ber 18 and said it “will act, in­clud­ing on off-pol­icy dates if war­ranted, so that in­fla­tion ex­pec­ta­tions sta­bilise.”

The move was pre­dicted by only five of 31 econ­o­mists sur­veyed by Bloomberg, with the rest es­ti­mat­ing an in­crease to 8%.

The yield on the 2023 bonds slid 10 ba­sis points, or 0.10 per­cent­age point, to 8.86% in Mum­bai on Mon­day, the most since De­cem­ber 18, ac­cord­ing to the cen­tral bank’s trad­ing sys­tem.

Last week’s jump was the big­gest since the pe­riod ended Novem­ber 8, data com- piled by Bloomberg show.

“What we are see­ing now is a relief rally,” said M. Natara­jan, Mum­bai-based head of trea­sury at Bank of Nova Sco­tia. “Gains are likely to be lim­ited given the un­cer­tainty around the tim­ing of a rate ac­tion by the cen­tral bank. Ev­ery­thing will de­pend on how the in­fla­tion num­bers pan out.”

The ru­pee, which rose 0.3% last week, fell 0.1% on Mon­day to 61.9150 per dol­lar, ac­cord­ing to prices from lo­cal banks com­piled by Bloomberg. One-month im­plied vo­latil­ity, a gauge of ex­pected moves in the ex­change rate used to price op­tions, in­creased one ba­sis point to 10.47%, down from this year’s high of 22.78% in Au­gust.

The cur­rency has dropped 11.2% in 2013, a third year of de­clines and the third-worst per­for­mance in Asia af­ter the In­done­sian ru­piah and yen, data com­piled by Bloomberg show. Gov­ern­ment bonds have re­turned 1.09%, af­ter ris­ing 10.9% in 2012, ac­cord­ing to an in­dex com­piled by HSBC Hold­ings. Bloomberg

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