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Government securities
Sovereign bonds were flat today as good response from the OMO countered
concerns over reserve bank rate action and the current liquidity situation. The 10
Yr benchmark bond closed 1bp higher at 7.94%, while 8.13% GOI 2022 bond
closed 1bp lower at 8.01% and the 8.08% GOI 2022 bond closed at
8.06%.Volumes in the benchmark bond were INR 5.90bn.
The Reserve Bank bought today INR 80.57bn in the OMO as against the INR 120bn
notified by it. It bought INR 48.43bn of 7.80% GS 2020 at 7.91%. This was well
below the yield traded in the benchmark bond at that time, causing a rally in the
bond.
Today the reserve bank’s Deputy Governor Gokarn commented that inflation was
not coming down as fast as the central bank would like it to. This caused negative
sentiment in bonds during the day as it increased the probability of a rate hike in
the next policy.
The swap curve steepened today with a upward shift as there was interest
payment across tenures. RBI deputy governor Gokarn’s concerns on inflation,
liquidity concern and disappointment over the choice of securities for the auction
were also among the causes. Traders now fear that these securities may not elicit
a strong response during the OMO. The 1 year OIS closed 8bps higher at 6.94%
while the 5 year OIS closed 12bps higher at 7.64%.
Non-SLR market
Union Bank raised INR 10bn of 3 month CDs at 9.03%. Canara Bank placed INR
9bn of 1 yr CDs at 9.65%. PNB and Andhra Bank raised INR 8.5bn and INR 7bn
respectively of 3 month CDs at 9.05%. Corporation Bank placed INR 5.75bn of 2
month CDs at 9.05%.
Money markets
Call rates ended flat at 6.97% as there was continued pressure on liquidity. CBLO
closed flat at 6.27%. The liquidity easing measures announced by the RBI did not
manifest itself in lower call rates. The RBI deputy governor Gokarn said today that
signs of instabillty in rates will be watched. LAF borrowing stepped up to INR 1.71
trn today compared to INR 1.59 trn yesterday.
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