Bonds continue third consecutive day in the red; Edelweiss

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Bonds continue third consecutive day in the red; ten year benchmark closes at
its highest level in a month of 8.11%

Government securities
 Sovereign bonds prices fell to their lowest in a month as traders were wary ahead of Friday’s
bond auction and the tight liquidity in the system. The benchmark 10 Yr bond closed 4 basis
points higher at 8.11% with the total volumes on the central banks trading platform at INR
8.30bn. The 7.99% GOI 2017 bond closed at 8.03% and the 8.13% GOI 2022 bond closed at
8.11%.
 This was the third straight negative day for bonds, the longest losing streak in two weeks. The
RBI Deputy Governor Gokarn said that inflation is still high, adding upward pressure to bond
yields. However liquidity remains the primary concern, as bond holders might have to sell
securities to achieve some liquidity.
 The underwriting auctions for Friday’s bond auction will be held tomorrow. The minimum
bidding commitment per PD will be INR 1bn for the 7.99% GOI 2017 bond and the 8.13% GOI
2022 and INR 0.75bn for the 8.30% GOI 2040 bond.


Non-SLR market
 Allahabad Bank, CBI and Vijaya Bank placed INR 7bn, INR 14bn and INR 2bn respectively of
90 day CD at 8.75%. Syndicate Bank raised INR 2.5bn of 90 day CD at 8.735%. PNB raised
INR 1bn of 1 year CD at 9%.

Money markets
 Call rates were lower today at a weighted average of 6.34%as the demand for liquidity eroded
in late trade today. CBLO rates remained flat at 6.23%. Banks borrowed INR 764.55bn via the
repo auction.
 Call rates went below the repo rate in late trade today after staying above it for the last 2
weeks. Most of the demand for bank’s reserve requirements has already been met earlier in
the week. The bids in the repo window were also lower today and this coupled with the
liquidity easing measure by the Reserve Bank had put a downward pressure on call yields.

Swaps
 The swap rate curve steepened today as there was paying interest in the longer tenures
mirroring pessimism in the government bond market. One year swap closed 1 bps higher at
6.80% while the five year swap closed 4bps higher at 7.36%.