Gilts unfazed by lack of OMO; LAF well within comfort zone •Edelweiss

Gilts unfazed by lack of OMO; LAF well within comfort zone
• The bond market seemed surprisingly unconcerned by a second successive week without
OMO purchases. The market was abuzz with rumors of withholding tax removal while
sizable FII limit auction also contributed to the positive sentiment.
• The 10-Y benchmark opened flat but touched a low of 8.15% during the day and ended
the day at 8.16% vs 8.18%. The next two sessions are expected to be cautious as
participants await the outcome of the auctions following last week’s disappointing
cutoffs.
• The demand at the FII debt limit auctions was significantly lower than the amount
available on offer in both categories – government long term & corporate long term
infrastructure.
• OIS rates ended slightly down as risk appetite waned and traders looked forward to the
ECB’s interest rate decision and US non-farm payrolls data. The 1-Y OIS ended the day at
7.76-7.82% vs 7.80-7.87%, while the 5-Y OIS ended at 7.18-7.24% vs 7.21-7.27%.
Non-SLR Market
NABARD placed 1M CP worth INR 15bn @ 8.70%. HDFC Limited placed 3M CP worth INR
7bn @ 9.23%. TMFL placed September Maturity CP worth INR 1.5bn @ 9.15%. HDFC Bank
placed 1Y CD worth INR 10bn @ 9.40%.
Money Market
Borrowing at the LAF window fell sharply with liquidity injection falling well below the RBI’s
comfort level of INR 650bn. The LAF borrowing was at INR 484bn and further dims hopes of
an OMO if these levels sustain. This improvement in liquidity was evident in the moneymarket
rates where the call WAR was at 8.16% vs 8.21%.

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