Caution ahead of the policy meet, gilts end at a low for the week : Edelweiss

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Caution ahead of the policy meet, gilts end at a low for the week
Government securities
 Sovereign yield edged higher ahead of the policy review meeting on Tuesday.
Yields across maturities have discounted a 25bps hike in the policy rate however
uncertain about central bank’s stance to counter the inflation, continues to keep
the sentiment bearish. Yields on the longer end have surged 15-22bps over the
fortnight owing to concerns about the persistently high inflation while the short
end yield continues to be under pressure due to the strained system liquidity. The
ten year bond closed 3bps higher at 8.16% while the 2022 bond closed 4bps
higher at 8.21%.

 At the auction RBI set a cut of yield of 8.19% for the 7.99% 2017 bond while the
cut off for the 8.08% 2022 bond was at 8.25%. The longer maturity 8.26% 2027
bond was auctioned at a cut off yield of 8.52%.
Non-SLR market
 Issuances of money market instruments remained low. As the RBI policy draws
closer, investors preferred to making investment post the policy. SBBJ placed INR
1.50bn of six month CD at 9.72% while Canara Bank placed INR 1bn of 15th June
maturity CD at 9.61%.
Money markets
 Swap curve steepened today owing to a sharp movement in the five year swap
rates as traders built paid positions ahead of the policy review. The one year swap
closed flat at 7.43% while the five year swap ended 5bps higher at 8.06%.
Overnight rates remained firmed throughout the week with the call rates closing at
6.67% while the CBLO rates hovering around the central bank lending rate. With
the squeeze in the system liquidity banks dependence on the LAF window has
increased to upwards of INR 1trn for this week.