Gilt yeilds drop on low IIP July numbers

Gilt yields dropped on September 10 on possible Federal Reserve cut, after data on non-farm payroll was released, indicating a slowdown in the US economy. Optimism was seen in the debt market, leading to ample liquidity in the banking system. The central bank received 25 bids and absorbed Rs 279.40 billion via 1-day reverse repos on Sep. 10, 2007. The benchmark yield on the 10-year federal bond ended at 7.83% down from Friday`s close of 7.88%.

Gilt yields reversed its mode on September 11, as traders booked profit with corporates paying for their taxes of Rs 350 billion, leaving the banking system with less liquidity. Demand for gilt was low with yields high on worries about inflation, which may be affected on spiraling crude oil prices trading at USD 78 barrel. The benchmark yield on the 10-year federal bond ended at 7.87%, up from the previous close of 7.83% .

Gilt yields declined on September 12 on slowdown of industrial activity that was low at 7.1% in July 2007 as against 13.2% last year. There was speculation that central bank may unchange or lower the interest rates. Demand of gilt increased with 91-days treasury bill witnessing a low cut-off price at Rs 98.26 (YTM is 7.1027%), marginally lower than Rs 98.27 at the previous auction. The notified amount for the auction was Rs 35 billion out of which Rs 30 billion was market stabilization scheme (MSS) amount. The benchmark 10-year bond yield ended at 7.86%, marginally lower than the previous close of 7.87%.

Gilt yields continued its northward journey on September 13 on concern of liquidity conditions in the debt market after payment of taxes of Rs 350 billion by corporates in the coming weeks. Besides that, apex bank intervened as there was shortage of liquidity in the system. To increase cash in the financial system, central bank bought Dollars. The benchmark gilt yields of 10-year bond ended at 7.87%, up a notch from the previous close of 7.86%.

Gilt yields reversed its mode on September 14, on speculation of Federal Reserve cut on interest rates to help the economy from a slowdown. Low inflation of 3.52% for the week ended September 1 as against 3.79% last week boosted the sentiments of the investors in the debt market. The benchmark yield on the 10-year bond ended at 7.86%, marginally lower than Thursday`s close of 7.87%.