Gilts rally on possibility of relaxation on issuance limits :: Edelweiss

Visit http://indiaer.blogspot.com/ for complete details �� ��



Gilts rally on possibility of relaxation on issuance limits
Government securities
 The benchmark ten year bond saw a sharp rally on hopes that the government
may not be compelled to float a new 10-yr bond after comments from the finance
ministry. Currently the outstanding in the 7.80% 2020 bond is INR 520 bn
however and the informal issuance limit is INR 600 bn. Traders now expect that
the bond will retain its benchmark status for the rest of the financial year. The
bond ended 5 bps lower at 8.13% while the 8.13% 2022 bond closed 2 bps lower
at 8.13%.
 Cut off yield at the T-bill auction edged higher on account of the tight liquidity in
the system. GoI auctioned 91 day T-bill at a cut off yield of 6.85%, up 8 bps from
previous auction while the yield on the 184 day T-bill was 23 bps higher at 7.05%.
 One year swap closed 3 bps higher at 6.79% while the five year OIS closed
unchanged at 7.22%.
Non-SLR market
 Demand from mutual funds was seen in the three month CDs on expectation that
rates will ease out on the shorter maturity CD once the IPO money flows back into
the system. Banks issued INR 10.25 bn worth CDs today. Bank of Maharashtra
placed INR 4 bn in three month CD at 7.80% while Syndicate Bank placed INR
4.50 bn in three month CD at 7.78%. Federal Bank placed INR 1.75 bn in three
month CD at 7.85%.
Money markets
 Overnight money market rates ended firm as liquidity sees no sign of
improvement. Coal India’s IPO last week accentuated the tightness in the money
supply by making the distribution of available funds uneven. Banks continued to
remain net borrowers at the LAF with bids amounting to INR 848 bn received
today. Call rates closed at 6.64% while the CBLO rates closed at 6.04% with total
money market volumes at INR 807 bn.