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Gilts rally as RBI surprises with 50bps repo rate cut
• The RBI delivered a positive surprise by slashing the repo rate by 50 bps to 8% as against
a market-wide expectation of a 25 bps cut. The bond markets welcomed this move and
yields reacted sharply, correcting by 10-15 bps across tenors.
• The 10-Y benchmark closed the day at 8.34% vs yesterday’s close of 8.45%. G-Sec trading
activity picked up after the policy announcement and total traded volumes at INR 283 bn
were significantly higher than the recent range of INR 100-150 bn.
• With upside risks to inflation, the RBI might have limited room for further easing and
hence might maintain status quo on rates at the next 2 policy sessions. This when
coupled with the weekly auction supply would limit the rally in Gilts and hence we expect
the gain in the 10-Y benchmark to be capped around the 8.20-8.25% level.
• OIS swaps also headed lower by 8-10 bps as this market too was surprised by the
quantum of rate cuts even though they have been buoyant about the policy expectations
of late. The 1-y OIS ended at 7.82-7.88% vs 7.91-7.95%, while the 5-y OIS closed at 7.41-
7.47% vs 7.48-7.52%.
Non-SLR Market
IOCL placed June maturity CP worth INR 15bn @ 9.23%. Jindal Power Limited placed 3M CP
worth INR 1bn @ 10.05%. L&T Finance placed June maturity CP worth INR 1bn @ 9.35%.
Money Market
The RBI has commented on the improving liquidity situation in today’s review and is
comfortable with current levels of LAF borrowing around the INR 700-800bn mark. Call
rates eased after the repo cut and deals were struck as low as 8.35% - however the WAR
appears elevated at 8.84% as most of the deals were closed before policy announcement.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Gilts rally as RBI surprises with 50bps repo rate cut
• The RBI delivered a positive surprise by slashing the repo rate by 50 bps to 8% as against
a market-wide expectation of a 25 bps cut. The bond markets welcomed this move and
yields reacted sharply, correcting by 10-15 bps across tenors.
• The 10-Y benchmark closed the day at 8.34% vs yesterday’s close of 8.45%. G-Sec trading
activity picked up after the policy announcement and total traded volumes at INR 283 bn
were significantly higher than the recent range of INR 100-150 bn.
• With upside risks to inflation, the RBI might have limited room for further easing and
hence might maintain status quo on rates at the next 2 policy sessions. This when
coupled with the weekly auction supply would limit the rally in Gilts and hence we expect
the gain in the 10-Y benchmark to be capped around the 8.20-8.25% level.
• OIS swaps also headed lower by 8-10 bps as this market too was surprised by the
quantum of rate cuts even though they have been buoyant about the policy expectations
of late. The 1-y OIS ended at 7.82-7.88% vs 7.91-7.95%, while the 5-y OIS closed at 7.41-
7.47% vs 7.48-7.52%.
Non-SLR Market
IOCL placed June maturity CP worth INR 15bn @ 9.23%. Jindal Power Limited placed 3M CP
worth INR 1bn @ 10.05%. L&T Finance placed June maturity CP worth INR 1bn @ 9.35%.
Money Market
The RBI has commented on the improving liquidity situation in today’s review and is
comfortable with current levels of LAF borrowing around the INR 700-800bn mark. Call
rates eased after the repo cut and deals were struck as low as 8.35% - however the WAR
appears elevated at 8.84% as most of the deals were closed before policy announcement.
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