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Systemic liquidity concerns persist; ten year benchmark closes at 8.03%
Government securities
Sovereign bond trading was steady today, with yields closing lower by 2bps. The
benchmark 10 Yr bond closed 2 basis points lower at 8.01% with the total volumes
on the central banks trading platform at INR 6.9bn level. The 8.13 GOI 2022 bond
closed at 8.06% and the 7.99 GOI 2017 bond closed at 7.95%.
Bearishness due to the tight systematic liquidity was counteracted by optimism
generated by slowing inflation numbers and comments by a finance ministry
official on the possibility of further open market operations by the Reserve Bank.
Food inflation slowed to a 17 month low with the WPI of agriculture at 10.15% for
the week ending November 13th vs. 10.30% for the previous week.
There was also turbulence in the European sovereign bond markets. Spain led
declines in the bonds of the Euro region yielding 5.22% on the ten year note and
the Irish ten year yields were near its highest since the Euro’s inception at 9.15%.
Non-SLR market
Union Bank placed INR 5bn 1yr CD at 8.90%, Syndicate Bank placed INR 5bn CD
at 8.29%, while ING Vysya, Karnataka Bank and PNB have raised INR 1bn each at
8.40%,8.30% and 8.30% respectively.
Money markets
Call rates and CBLO rates closed slightly lower today at 6.85% and 6.24%
respectively due to tight liquidity in the banking system. CBLO rates closed lower
at 6.26%. Banks borrowed INR 1.10tn via the repo auction.
Call rates and bank borrowings from the repo auction are likely to remain high in
the coming days as the outflows due to the equity offerings that hit the market in
the last month has not returned to the system. Weak deposit growth and lack of
government spending has also kept the liquidity tight.
Swaps
The swap rate curve retained the same shape as there was a slight paying interest
across tenures. One year swap closed 2 bps higher at 6.79% while the five year
swap closed 2bps higher at 7.24%.
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