Sentiment remains cautious ahead of the policy review:: Edelweiss

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Sentiment remains cautious ahead of the policy review
Government securities
 Sovereign bonds gave up all their intraday gains as participants preferred to stay
on the sidelines ahead of the policy review. Caution of stringent monetary
tightening has gained ground following comments from government officials. Brief
respite was seen in the yields after release of the food inflation for the week
ending 16th Oct which hit a 50 week low. Food article inflation receded to 13.75%
compared to 15.53% for the previous week.
 The benchmark 10 Yr bond closed 1 basis higher at 8.14% while the 8.13% 2022
bond closed 1 basis lower at 8.12%. Volumes on the central banks platform were
at INR 79 bn; the 8.13% 2022 bond continued to be the most liquid accounting for
38.50% of the total volume.
Non-SLR market
 Money market issuances remained muted as banks were not keen on issuing CDs
as rates in the short end maturity has risen 20-25 bps in this month due the tight
liquidity situation. State Bank of Travancore placed INR 4 bn of three month CD at
7.78% while Federal Bank placed INR 500 mn of same maturity CD at 7.85%.
Money markets
 Reserve Bank of India continued to inject around INR 900 bn into the system for
the fourth day in a row indicative of the liquidity crunch. Call rates ended firm at
6.58% while the CBLO rates ended at 6.10%.
Swaps
 OIS rates saw a slight easing on hopes that the presently skewed liquidity may
start getting more evenly distributed owing to the likely flow of the Coal India IPO
into the system. One year swap rate ended 4 bps lower at 6.75% while the five
year swap closed unchanged at 7.22%.