Sovereign yields ended steady, LAF borrowing soars to INR 1trn: Edelweiss

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Sovereign yields ended steady, LAF borrowing soars to INR 1trn
Government securities
 Sovereign yields ended flat today however the underlying sentiment improved as
the government decided not to conduct an auction this week. With a possibility of
no fresh supply until the next fiscal, the appetite in the market has revived.
Although the yields ended flat volumes jumped to INR 77bn compared to an
average volume of INR 60bn in the past couple of weeks. The benchmark ten year
bond closed at 8.10% while the 8.13% 2022 bond ended unchanged at 8.16%.

 Swap rates saw upward pressure on concerns that the high inflation rate may
warrant action from the central bank. Despite a drop in inflation in the month of
Jan, the pace of the slowdown continues to be a concern. The one year swap
closed 3bps higher at 7.50% while the five year swap ended at 8.07%, up 4 bps
from Monday’s close.
Non-SLR market
 CD issuances remained robust with banks mopping up INR 30bn today. Three
month CDs were dealt at 9.95% while CPs were dealt at 10.25% level. State Bank
of Travancore placed INR 2.50bn of three month CD at 9.94% while Andhra Bank
placed INR 3.10bn of same maturity CD between 9.95% - 9.98%. Axis Bank
placed INR 3bn of one year CD at 10.20% and Punjab Sind Bank placed six month
CD amounting to INR 4bn at 10.01%.
Money markets
 LAF borrowing rose to INR 1trn today compared to an average INR 726bn in the
previous fortnight mainly on account of the front loaded borrowing by banks to
meet their reserve requirement for the fortnight. With absence of auction and
accelerated spending by GoI, overnight rates are expected to hover around the
central bank’s lending rate.
 RBI set a cut off yield of 7.14% for the 91 day T-Bill while the cut off for the 182
day T-bill was set at 7.53%, 4bps higher than the previous auction.