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Bond yields slump to one-and-half month low on RBI’s rate cut hopes

01 Jun 2012 Evaluate

Bond yields eased to one-and-half month low, as shocker Q4 GDP spurred hopes that the central bank would cut interest rates in its mid-June policy meeting. While expectations of a rate cut have been gaining momentum, given the record trade deficit and high inflation, there is very little headroom for the central bank to reduce rates, after it cut the repo rate by 50 basis points in April.

On the global front, US Treasury bond prices steadied in Asia on Friday, as investors awaited the key US payrolls report, for clues on labor market recovery. Private payroll data for May released on Thursday showed growth accelerated only slightly last month and claims for jobless benefits rose last week. Meanwhile, Brent crude fell towards $101 a barrel on Friday, after data showed manufacturing activity in No. 2 oil user China fell 2.9 percentage points to 50.4 percent in May, just above the 50 level that signifies expansion.

The yields on 10-year benchmark 8.79% - 2021 bonds were trading 3 basis points lower at 8.35% from its previous close of 8.38%.

The benchmark five-year interest rate swaps dropped 2 basis points to 7.32% from its previous close of 7.34% on Thursday.

Back home, the Government of India after market hours on Monday announced the sale (re-issue) of four dated securities for Rs 15,000 crore, which includes (i) “8.19% Government Stock 2020” for a notified amount of Rs 4,000 crore (nominal) through price based auction, (ii) “9.15% Government Stock 2024” for a notified amount of Rs 7,000 crore (nominal) through price based auction (iii) “8.28% Government Stock 2032” for a notified amount of Rs 2,000 crore (nominal) through price based auction and (iii) “8.83% Government Stock 2041” for a notified amount of Rs 2,000 crore (nominal) through price based auction. The auctions will be conducted using uniform price method. The auctions will be conducted by the Reserve Bank of India, Fort, Mumbai on June 01, 2012 (Friday).

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