Bonds break losing streak on optimism of FII demand post auction: Edelweiss

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Bonds break losing streak on optimism of FII demand post auction; ten year benchmark closes at 8.09%.

Government securities
 Sovereign bonds prices broke its losing streak as there was some optimism ahead of the
auction of FII debt limits being held today. The benchmark 10 Yr bond closed 2 basis points
lower at 8.09% with the total volumes on the central banks trading platform at INR 8.25bn.
The 7.99% GOI 2017 bond closed at 7.98%, lower by 5bps.

 The 7.80% GOI 2020 bond and the 7.99% GOI 2017 saw the most action as traders
speculated that FII demand would emerge in these bonds. The FII limits auction is for
increased and unutilized limits, to be utilized in paper above 5yrs and utilized within 45 days.
The 7.80% GOI 2020 bond gained due to its benchmark status and the 7.99% GOI 2017 bond
gained due to its high coupon and short tenure, which is preferred by FIIs.
 Food inflation data for the week ending November 20th was at 8.60% as against 10.15% last
week. Although a fall in the inflation was expected due to the base effect, it did deliver some
optimism that the reserve bank’s stance will be less hawkish.
 The underwriting auctions for Friday’s bond auction were held today. The Commission cut-off
rate was 0.64p per INR 100 for the 7.99% GOI 2017 bond, 0.62p per INR 100 for the 8.13%
GOI 2022 and 0.84p per INR 100 for the 8.30% GOI 2040 bond.

Non-SLR market
 IOB place INR 1bn of 1 year CD at 9% and INR 2bn of 6 month CD at 8.98%. Syndicate Bank
raised INR 2bn of 3 month CDs at 8.735%.

Money markets
 Call rates were flat today at a weighted average of 6.34%, staying above the repo rate as
liquidity in the system remained tight. CBLO rates were lower at 6.20%. Banks borrowed INR
518.10bn via the repo auction.
 Call rates have however eased a bit over the last week. Banks are borrowing lesser in the
RBI’s repo window as a lot of them have borrowed for their reserve reporting requirements
last week itself. However, RBI deputy governor Gokarn’s comments that the CRR will unlikely
to be used as a tool to boost liquidity, will keep upward pressure on call rates.

Swaps
 The swap rate curve flattened a few bps today as there was a slight receiving interest in the
longer tenures mirroring optimism in the government bond market. One year swap flat at
6.80% while the five year swap closed 2bps lower at 7.34%. The volumes in the market were
low with the lack of any major cues for traders.