Yields remain range bound; uncertainty over the GoI auction::Edelweiss

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Yields remain range bound; uncertainty over the GoI auction
Government securities
 Yields moved in a narrow range today amidst uncertainty over whether the
government will raise more funds from the market. Although the borrowing
program was concluded in the previous fortnight; GoI still has an option to raise
another INR 100bn in order to make up for the truncated borrowing in December.
The underlying sentiment however continues to be positive for the week ahead
owing to the slowing inflation as well as anticipation of no more supply from GoI.
 For the week, the ten year bond closed 5bps lower at 8.10% while the 12 year
bond closed 6bps lower at 8.15%. Volumes remained higher averaging INR 85bn
compared to INR 55bn in the last week.

Non-SLR market
 CD issuance remained robust as banks continued to issue CDs to boost their
deposit base and also to refinance their maturing instruments. Short term rates
have risen almost 15-20bps this week; widening the negative spread between the
3M CD and the 10Yr bond further to 80bps compared to 28bps a month ago.
Canara Bank placed INR 3bn of one year CD at 10.05% while IDBI Bank placed
similar maturity CD at 10.08% for a quantum of INR 2.50bn. UCO Bank placed
three month CD at 9.99% while PNB placed three month CD at 9.98%.
Money markets
 Banks dependence on the LAF continued to be upwards of INR 1trn for the first
week of the reporting cycle. Call rates remained firm in the 6.80% - 6.85% range
while the CBLO rates hovered above the central bank’s lending rate. Sovereign
bond redemption amounting to INR 170bn will provide some respite however
liquidity will remain under pressure due to the cyclical rise in credit off take in Feb-
Mar as banks prop up their balance sheets at the end of the financial year.