GoI buyback plan futile; trading volume dips to INR 44 bn :: Edelweiss

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GoI buyback plan futile; trading volume dips to INR 44 bn
Government securities
 GoI buyback plans turned out to be pointless as only INR 21.50 bn worth of
securities were bought back compared to the notified INR 120 bn due to the lower
than expected yield offered. Result of the buyback was announced post market
hours and is expected to dampen the mood in tomorrow’s trade. Volumes dropped
to a low of INR 44 bn compared to a weekly average of INR 84 bn in the previous
week. 10 Yr benchmark bond closed at 8.14% while the 8.13% 2022 bond closed
1 basis higher at 8.11%.
Non-SLR market
 Dena Bank placed INR 1.25 bn of one year CD at 8.50% while United Bank of India
placed INR 2 bn of three month CD at 7.65%. L&T Finance placed INR 1 bn CP
maturing on 12th December 2010 at 7.85%. Usha Martin placed INR 250 mn of 90
day CP at 8.30%.
Money markets
 Money market rates ended significantly higher than the RBI’s lending rate due to
the rush of funds at the beginning of the new reporting cycle and the persistently
tight liquidity situation. Chances of improvement in the liquidity situation, due to
the buyback, look grim after a lackluster response at the first tranche of buyback.
RBI infused INR 900 bn into the system through the repo window, significantly
higher than last week’s average of INR 605 bn. Call rates ended at 6.77% while
the CBLO rates ended at 5.99% with total money market volume surpassing INR
800 bn.
Swaps
 OIS rates edged higher ahead of the policy review next week on 2nd November
pricing in an expectation of a rate hike. The one year OIS closed 5 bps higher at
6.70% while the five year OIS closed 8 bps higher at 7.18%