Rating rally ends in the bond market

After two days of super rally in the domestic bond market the dealers are on a consolidation mode today. Dealers with public sector banks say now that the rally is over there will be consolidation from here there is only going to be a 0.5% movement either  up or down. 

Today the bench mark government bond is up  two basis points  trading at 6.91% during the morning trade.  Yesterday the yields had ended at 6.89% for the bench mark bond.

Two days of rally from Friday was due to Reserve Bank of India cancelling the open market operation of Rs 10,000 crore scheduled for November 23, citing liquidity conditions. It has absorbed more than Rs 90,000 crore of liquidity from the markets nuetralising the excess money floating in the system.

Close on the heels of the OMO cancellation came the Moody’s upgrade where the sovereign rating was move up to Baa2 two notches above the junk status. This resulted in a 17 basis point rally in the bond market on November 20 with the bench mark bond ending at 6.89. 

The total rally  for November 20 and November 17 was nearly 58 basis points down from the 7.47% levels early last week.

“But now the reality is striking the market. The rising inflation due to erratic food prices,a stubborn Reserve Bank of India unwilling to let go its guard on  inflation  and concerns about the fiscal discipline are all going to weigh on the market, “ said a head of treasury at a public sector bank.