The Hindu Business Line : Bond prices crash on SLR status statement, recover

The bond market went into a tizzy today over a statement by the Petroleum Secretary that oil bonds may get SLR (statutory liquidity ratio) status. Bond prices fell by as much as 63 paise in day trade and ended 40 paise lower than the previous close.

After a statement by the Petroleum Secretary, Mr M.S. Srinivasan, yields on the benchmark 7.99 per cent 9- year-2017-government paper increased from 7.46 per cent to 7.52 per cent.

"Some traders thought that even the existing oil bonds would get SLR status.

Therefore, yields moved up sharply anticipating that supply of paper in the market will increase," said a senior treasury official with a public sector bank.

One section of the market also thought that people would now shift to oil bonds and not buy G-Secs.

That was another reason why yields on the 10-year G-Sec increased.

However, later when the market realised that the statement was not based on a concrete decision, but merely a possibility, yields fell.

The 7.99 per cent-9 year 2017 paper opened at Rs 103.3 (7.49 per cent YTM). It then increased to Rs 103.58 in day trade (7.45 per cent YTM).

After the statement by the Petroleum Secretary, the price dropped to a low of Rs 192.95 (7.54 per cent YTM), before recovering to close at Rs 103.2 (7.51 per cent YTM), against the previous close of Rs 103.61 (7.45 per cent YTM).

"Prices fell after the initial reaction. Oil bonds are not very tradable, as they are longer dated," said the official.

Some market participants are expecting that oil bonds may be given SLR status to help oil companies recoup the losses arising out of rising fuel prices.

Even if it happens, the Government may allow SLR status only to fresh oil bonds, the official added. On Friday, the total traded volumes on the order matching system were at Rs 7,620 crore (Rs 6,450 crore).

The 8.33 per cent-28 year-2036 paper opened at Rs 106.6 (7.75 per cent YTM) and closed at Rs 105.99 (7.8 per cent YTM) against the previous close of Rs 106.82 (7.73 per cent YTM).

Today's fall is not an indication of how the bond market may move, said dealers. Bond yields are likely to move down, considering the huge appetite in the market.

Dealers are also building up positions based on expectations of a rate cut by the RBI.

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