India Bonds End Higher Amid Market Hopes For 2% Rate Cut|
Friday, February 11 9:26 PM SGT
BOMBAY (Dow Jones)--Indian bond prices ended higher Friday as tight liquidity failed to dent hopes for a generous interest rate cut, dealers said.
Liquidity is tight following the outflow of 50 billion rupees($1=INR43.63) Friday for Thursday's two bond auctions.
Bonds were steady early after a brief initial fall, when the call rate rose to a high of 18%. But prices recovered when the call rate fell below 10%. Call money ended the day at 8.75%, down from the previous close of 9.75%.
Dealers said investors have fresh expectations of a 2% cut in the bank rate, more than the previously hoped-for 1%. Bond prices continue to rise on these hopes, dealers said.
State-owned banks and primary dealers were the major buyers, said a dealer.
He added that state-owned banks, which usually lend their surplus cash in the call market, are now investing the surplus in the bond market,where prices have been rising by more than INR0.50 a day.
Dealers said they expect the bond market to respond closely to the call market rate. "As long as the call rate stays within the 10% level, there will be buying in bonds," a dealer said.
"I am comfortable borrowing money even at 10% and investing in the bond market because prices are continuously rising there," said a dealer.
The following are indicative prices of government securities at 1215 GMT Friday:
Security Maturity Current Price Previous
11.83% GOI 2014 108.20 107.79
12.30% GOI 2016 111.80 111.45
GOI: Government of India