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Bond yields steady before auction, reserve rise

Bond yields steady before auction, reserve rise
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First Published: Thu, Aug 02 2007. 10 00 AM IST
Updated: Thu, Aug 02 2007. 10 00 AM IST
Mumbai: Indian federal bond yields were mostly steady in early deals on Thursday (2 August) as investors braced for fresh supplies and a rise in reserve requirements for banks that will absorb cash supplies from the market.
At 9:26 a.m. (0356 GMT) the 10-year bond yield was at 7.91%, unchanged from Wednesday’s (1 Aug) close.
The yield is up 7 basis points so far this week and is 13 basis points higher than Monday’s low of 7.78%.
“Yields may be pressured higher in the coming weeks due to the Reserve Bank of India (RBI)’s cash draining measures,” a local trader said.
On 31 July, the RBI raised the cash reserve ratio (CRR) to 7.0% from 6.50% with effect from 4 August. It said the move would absorb Rs160 billion ($4 billion) from the banking system.
Adding to the drain on cash, the government is auctioning Rs100 billion of bonds on Friday. On 1 August, the central bank sold Rs90 billion of bonds and treasury bills.
The RBI set a cut-off price of Rs96.14 at the auction of 5.48% 2009 bond auction, sharply lower than market expectations. The cut-off price corresponded to a yield of 7.74%, much higher forecast of 7.55% in a Reuters poll.
Dealers were worried that demand may not be strong at Friday’s auctions, and that could affect market sentiment.
Spreads between 1-year and 5-year bonds tightened to 35 basis points from 36 on 1 August, much narrower than 66 basis points two weeks earlier. --------------------------------------------------------------
MARKET SNAPSHOT,10,18,38,49
Bombay Sensi tive Index BSESN
Indian rupee INR=IN
($1=40.5 rupees)
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First Published: Thu, Aug 02 2007. 10 00 AM IST