Disappointment with RBI’s liquidity easing measures; Edelweiss

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Disappointment with RBI’s liquidity easing measures; ten year benchmark
closes at 8.07%

Government securities
 Sovereign bonds prices fell down on pessimism due to strong GDP numbers, traders
disappointment with RBI’s liquidity easing measures and the upcoming bond auction. The
benchmark 10 Yr bond closed 6 basis points higher at 8.07% with the total volumes on the
central banks trading platform at INR 10.90bn. The 7.99% GOI 2017 bond closed at 8.01% up
5 bps.


 The 3rd quarter GDP growth number was at 8.9% vs. 8.8% previously and an expectation of
8.2% according to a Bloomberg survey. This stoked fear of chances of a further rate hike by
the RBI, adding pressure to bonds.

 RBI announced a leeway in the SLR to 23% and continuation of the special auction under LAF
till January 28th as an ad hoc measure. The market was also disappointed with the RBI
announcing liquidity easing measures as it was weaker than expectation. The measures are
temporary and RBI is unlikely to take further steps to ease liquidity in the system.

 In Global markets, US treasuries rose for the third day in a row. There was increased
speculation that Portugal and Spain will now go through similar financial crisis as Ireland. They
also rose as the Federal Reserve was expected to buy Government notes from 2014 to 2016 in
the amount between 6 Billion USD to 8 Billion USD. Benchmark ten year yields was @ 2.78 %

Non-SLR market
 Canara Bank placed INR 7.5bn respectively of 90day CD at 8.60%. Punjab & Sind Bank raised
INR 5bn of 1yr CD at 9.08%. PNB raised INR 4bn of 1yr CD at 9% and INR 3bn of 90day CD at
8.60%.State Bank of Patiala raised INR 0.75bn of 1 yr CD at 8.98%.

Money markets
 Call rates were lower today at 6.50% on the Reserve Banks announced liquidity easing
measures. CBLO rates remained 6.24% Banks borrowed INR 878.45bn via the repo auction.
 The announced liquidity measures provided a slight relief to the call market, but it will be
interesting to see if the correction sustains as the announced measures seem temporary and
lesser than market expectation

Swaps
 The swap rate curve steepened today as the RBI’s liquidity measures generated a corrective
receiving interest in the shorter tenures while there was paying interest in the longer tenures
mirroring pessimism in the government bond market. One year swap closed 4 bps lower at
6.80% while the five year swap closed 6bps higher at 7.32%.