Prices of tax free bonds spike, as rate cut looms

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Prices of tax free bonds spike, as rate cut looms
Prices of tax free bonds that listed recently moved up this week on indications that the RBI may cut repo rates.

The HUDCO 10 year tax free bond which was traded at around Rs 980 per bond, moved closer to Rs 990, while the recently issued tax free bonds of REC also saw substantial gains in both the 10 year and 16 year bond maturities.

National Highways Authority of India and Indian Railways Finance bonds also saw a increase in their bond prices listed on the NSE and BSE.

Most of these bonds carry a tax free interest income of anywhere between 7.90% and 8.20%.

When interest rates tend to fall, the value of these bonds increase. Now, the increase in the prices was largely in anticipation that there maybe a cut in rates by the Reserve Bank of India, which meets on April 17, 2012 to review its Monetary Policy.

Read more about: hudco, rec
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