Thursday, November 13, 2008

RBI buyback triggers bond rally

Government bond prices ended sharply higher on Wednesday as sentiment improved after the Reserve Bank of India’s (RBI) offer to buy back Rs 10,000 crore of two gilts issued under the Market Stabilisation Scheme (MSS) was fully subscribed, dealers said.

RBI bought back Rs 5,000 crore each of 5.87 per cent, 2010 paper and 6.65 per cent, 2009 paper. The 10-year benchmark 8.24 per cent, 2018 paper closed at Rs 104.24 as against Rs 103.70 on Tuesday.

“The MSS bond buyback tender went through smoothly and RBI was able to buy back the entire amount it had offered. So, sentiment and liquidity view improved,” said N S Venkatesh, managing director and chief executive officer, IDBI Gilts.

The cut-offs for the MSS gilt buyback tender were near the market expectations, which also added to the buying.

RBI set a cut-off of Rs 98.92 at 2010 gilt tender as against the market estimate of Rs 98.95.

Similarly, the central bank bought back the 2010 paper at Rs 99.94 against the market estimate of Rs 99.97.

Earlier in the day, gilts had risen following comments from Petroleum and Natural Gas Minister Murli Deora that the government may consider a cut in domestic fuel prices once crude oil price steadies and the rupee stabilises against dollar.

“The government may line up some populist measures as inflation looks likely to subside and general elections draw closer,” said a dealer of a private bank.

But Prime Minister Manmohan Singh had on Tuesday ruled out any possibility of a fuel price cut. The sharp fall in global crude oil prices in the last few months has triggered the hope of a fuel price cut.

Gilts had pared gains towards afternoon because of the stronger-than-expected September industrial production growth figure of 4.8 per cent, lower from 7 per cent a year ago, but higher from the market estimate of 3.7 per cent.

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