Tight liquidity, auction announcement and upcoming macro data :: Edelweiss

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Tight liquidity, auction announcement and upcoming macro data trigger profit
booking ; ten year benchmark closes at 8.01%

Government securities
 Sovereign bonds gave away Friday’s gains as tight liquidity and the upcoming auction
triggered profit booking. The benchmark 10 Yr bond closed four basis points higher at 8.01%
with the total volumes on the central banks trading platform at INR 4.35bn level. The 7.99%
GOI 2017 bond closed at 7.96% while the 8.13% GOI 2022 bond closed at 8.07%.

 The GOI announced an INR 110bn auction to be held on 3rd December. These include INR
40bn each of 7.99% GOI 2017 bond and 8.13% GOI 2022 bond and INR 30bn of 8.30% GOI
2040 bond.
 Liquidity remained tight in the system and coupled with the upcoming auction on Friday, cued
traders to take profit on their positions.
 Tomorrow’s GDP data also triggered traders to lighten their positions. The Bloomberg poll
shows an expectation of 8.2% in the 3rd quarter as against 8.8% previously.

Non-SLR market
 Andhra Bank placed INR 3bn of 90 day CDs at 8.60%. The private sector lender ING Vysya
Bank INR 2bn of 90 day CDs at 8.80%. NABARD raised INR 10bn of 1yr and 3 days NCD at
8.90%.

Money markets
 Call rates and CBLO rates remained high at 6.67% and 6.23% respectively as liquidity
remained tight. Banks borrowed INR 827.70bn via the repo auction.

Swaps
 The swap rate curve flattened today as the tight liquidity situation generated paying interest in
the shorter tenures. One year swap closed 5 bps higher at 6.84% while the five year swap
closed 1bp higher at 7.26%.
 The shorter tenure swaps are facing upward yield pressure as no significant measures from
the Reserve Bank have been taken to address the tight liquidity situation. No additional
announcement of Open Market Operations to infuse liquidity and Cash Reserve Ratio cut is
deemed unlikely as it would be against the RBI’s hawkish stance.