Liquidity situation outside comfort zone, RBI announces steps to cope up: Edelweiss

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Liquidity situation outside comfort zone, RBI announces steps to cope up
Government securities
 The 10 Yr bond yield saw a sharp rise today on the back of heightened fear that
the bond had reached the end of its lifespan as the benchmark bond. The central
bank, in the week ending 5th Nov, bought back INR 40 bn of the bond through
OMO. However with the auction on Friday, its outstanding will again get closer to
the ceiling of INR 600 bn, making it more illiquid. The 10 Yr bond closed 4 bps
higher at 8.02% while the 8.13% 2012 bond, given its liquidity and relatively
lower outstanding, saw buying interest.




Non-SLR market
 Tight liquidity lifted rates on the shorter maturity instrument by 5-7bps. Issuance
in the Certificate of Deposit remained muted on limited appetite in the mutual
funds owing to the limited inflows in the short term schemes. State Bank of
Travancore placed INR 4.50 bn of June maturity CD at 8.45% and INR 1.50 bn 1
Yr CD at 8.50%.
Money markets
 Noting the tightness in the liquidity going above the comfort level, the central bank
reintroduced the second liquidity adjustment facility until 16th December on an ad
hoc basis. The Reserve Bank also cushioned banks to dip into their SLR holdings
up to 1% of their net NTDL to avail additional liquidity support. Borrowing at the
LAF window remained above the INR 1 trn mark for the second of the week on the
back of hefty demand from banks to meet their reserve requirements. Call rates
remained firm at 7.35% amidst the tight liquidity situation while the CBLO rates
closed at 5.81% for the day.
Swaps
 OIS rates eased across tenures as traders trimmed their paid positions after the
central bank announced steps to cope up with the liquidity situation. One Yr swap
closed at 6.68% while the five Yr swap closed at 7.17%.