Edelweiss, - Yields edge lower comforted from the sharp fall in food inflation index

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Government securities
 Bond prices saw a rise across maturities comforted by a sharp decline in the
weekly inflation data. In the week ending Feb-5, food inflation eased to 11.05%
compared with 13.07% a week ago. Primary articles inflation also softened to
14.59% compared to 16.24% a week ago. A sharp fall in the food prices index for
the second consecutive week (5.09% decline in index value compared to Jan-22)
has eased concerns that the central bank will hike policy rates aggressively. The
most liquid 12-Yr bond closed 2bps lower at 8.14% while the 10-Yr bond closed
2bps lower at 8.08%.
 Swap rates edged lower taking cues from the declining food price trend over the
last fortnight. The five year swap has corrected sharply to 8.02% compared to its
high of 8.19% on 7th Feb. However the one year swap continued to hover in the
7.47%-7.50% range due to strain on the liquidity again.
Non-SLR market
 Banks mopped up INR60bn through issuance of CDs. Canara Bank & Corporation
Bank placed one year CD amounting to INR 5bn each at 10.06% and 10.05%
respectively. Bank of Baroda raised INR 10bn of three month CD at 9.96% while
PNB raised INR 5bn at 9.98%. State Bank of Mysore placed three month CD at
9.97% while SBBJ placed nine month CD at 10.09%.
Money markets
 Overnight rates remained steady as banks demand for funds remained strong in
the first week of the reporting cycle. Borrowing at the LAF facility was upwards of
INR 1trn however with redemption of INR 170bn due on Feb-24; system liquidity
will ease marginally in the coming week. Call rates ended at 6.82% while the CBLO
rates closed at 6.51%.