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Bonds trade in a narrow range, volumes lacklustre due to year end
Government securities
Sovereign yields remained range bond in trade today, with volumes dipping to INR
16.50bn due to the year end. Participants refrained from making any big purchase
however the sentiment remained positive due to the central bank’s open market
operations scheduled next week. RBI will conduct the third tranche of the INR
480bn buyback in the next week in an effort to normalize the strained liquidity
situation. During the fortnight, the central bank has already injected INR 195bn
through repurchase of securities against the planned INR 240bn.
The ten year benchmark bond ended the month at 7.91%; trading in a wide range
of 7.90%-8.21%, mainly on account of the uncertainty about the buyback plan
from the central bank. With a relatively high current o/s of the bond (INR 560bn),
post the buyback of INR 48.43bn on 22nd Dec, we can expect the central bank to
repurchase the bond at the third tranche of OMOs in order to prolong the
benchmark status of the bond.
Non-SLR market
Short term rates edged lower due to the improvement in the outlook for the
liquidity; post the OMOs from the central bank. Vijaya Bank and IDBI placed INR
4bn and INR 8bn of April maturity CD at 9.13% and 9.10% respectively. State
Bank of Hyderabad and Punjab National Bank placed INR 3bn each of one year CD
at 9.45% and 9.48% respectively. Karur Vysya Bank placed INR 1bn of April
maturity CD at 9.25%.
Money markets
Money market volumes also ended lower at INR 515bn compared to INR 758bn
yesterday. Call rates closed at 6.73% while the CBLO rates dropped significantly to
5.57% compared to 6.24% yesterday as demand for funds faded on the last day of
the reporting cycle. Central Bank injected INR 1.13trn through the LAF window
compared to INR 1trn on Thursday.
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