Gilts trade weak; LAF moves further into comfort zone • Edelweiss

Gilts trade weak; LAF moves further into comfort zone
• In the absence of any fresh triggers other than the auction tomorrow, gilts traded with a
negative bias through the session though movement was limited. The lukewarm response
at yesterday’s FII debt limit auction also dampened spirits to an extent.
• The 10-Y benchmark paper traded in a narrow-range of 8.16-8.18% and closed the day at
8.18% vs 8.16%. Tomorrow’s session will be underlined by the outcome of the INR 150bn
auction as participants await the impact of another OMO-free week.
• The OIS market also traded in a cautious fashion awaiting the outcome of the ECB policy
decision. The 1-Y OIS ended the day flat at 7.76-7.82%, while the 5-Y OIS was also flat at
7.18-7.24%.
Non-SLR Market
SBT placed 3M CD worth INR 2bn @ 8.93%. Union Bank of India placed 1Y CD worth INR 2bn
@ 9.37%. CPCL placed 3M CP worth INR 2bn @ 9.05%.
Money Market
LAF borrowing which plunged yesterday continued to surprise as demand at this window
was under INR 150bn today. If this unexpected easing of the liquidity situation sustains, it
will clearly soften the pressure on the RBI to aggressively pursue OMO activity. Call rates
also moved in sync with this trend and borrowing WAR once again approaches the repo rate
– WAR was at 8.05% vs 8.16%.

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