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OMO announcement weighs on the sentiment; 10 Yr bond rises 12 bps today
Government securities
Sovereign bonds saw a sharp rise in yields reacting to the unanticipated selection
of the bonds to be bought back in the scheduled OMOs of INR 120bn on
Wednesday. Market participants were disappointed over the central bank’s
selection of the 6.90% 2019 and 7.94% 2021 gilts for the buyback. The 10 Yr
benchmark bond was the worst hit as most traders trimmed their holding on view
that the bond will become illiquid post the auction on Friday 7th Jan. However the
2015 and 2017 bond traded firm as they are being bought under the OMOs.
At the state development loans auction of INR 30bn, the central bank set a cut off
yield in the range of 8.38% - 8.42%.
Non-SLR market
State Bank Hyderabad placed INR 5bn of 28th Dec maturity CD at 9.58% and INR
5bn of 11th April maturity CD at 9.09%. SBBJ placed INR 2bn of June maturity CD
at 9.34% while State Bank of Travancore placed INR 2.25bn of 7th April CD at
9.06%. United Bank of India placed INR 2.50bn of April maturity CD at 9.12%.
Money markets
Overnight rates ended lower as the strained liquidity received some respite with
inflow of the buyback money as well as the absence of a sovereign auction last
week. LAF borrowing eased to a month low INR 692.75bn compared to an average
borrowing of INR 1.19 trn in the month of December. Noting the lower dependence
of banks on the LAF to meet their reserve requirement, swap rates also edged
lower. The one year swap closed 4 bps lower at 7.10% while the five year swap
closed 6 bps lower at 7.75%.
CBLO volumes saw a sharp rise to INR 688bn compared to INR 575bn on Monday
as banks preferred to borrow at the CBLO window owning to the lower rates
compared to the repo rate and the call rates. The weighted average CBLO rates
closed at 6.18% while the call rates closed at 6.59%.
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