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Soaring inflation & rate hike worry dampens market sentiment
Government securities
Sovereign bonds ended weak in today’s trade on heightened concerns of another
round of rate hike from the central bank given the rise in inflation for December.
The wholesale price index based inflation rose to 8.43% in December compared to
11-month low of 7.48% in November. The benchmark ten year bond closed 4bps
higher at 8.19% while the most liquid 8.13% 2022 bond ended the week at
8.19%. Due to the lack of demand from FII, the 7.99% 2017 bond lost most of its
gains closing the week at 8.07%.
Swaps rates on the short end also edged higher taking cues from the bond yields.
The one year and two year swap closed 3 bps higher at 7.31% and 7.42%
respectively. Concerns over any further improvement in the liquidity after the last
tranche of OMOs on Wednesday led to a rise in the short term swap rates.
Non-SLR market
HDFC Bank placed INR 8.20bn of one year CD at 9.75% while SBBJ placed INR
2bn of same maturity CD at 9.72%. Andhra Bank placed INR 2.10bn of three
month CD at 9.17% while Canara Bank placed INR 3bn of three month CD 9.15%.
Money markets
Overnight rates ended lower as the demand for funds from banks typically remains
skewed towards the first week of the reporting cycle. Call rates closed at 6.35%
while the CBLO rates dropped to 5.28%. However the CBLO volumes remained
muted at INR 210bn compared to INR 635bn yesterday since banks had already
meet their reserve requirement for the reporting cycle.
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