Source: Bloomberg
• The g-sec market turned bearish upon announcement of the first half borrowing calendar, with 10 year benchmark yield touching a 3 month high of 8.62%. However a surprise announcement of OMO by RBI on 29th March calmed the jittery sentiments, preventing further sell off. But sentiments remain bearish on concerns that the renewed pressure on inflation may restrict RBI from cutting interest rates aggressively. The 10 year benchmark yield closed the week 15 bps higher at 8.54%.
• As per the borrowing calendar, the Government is planning to raise Rs.3.70 Tn in the first half, which is around 65% of the total borrowing planned for FY13. The weekly supply is quite heavy with an average supply of Rs.150-180 Bn per week. With redemptions of about Rs.880 Bn, the net borrowing is likely to be in the range of 2.8Tn, which is about 48% higher compared to the first half borrowing last year.
• The corporate bond market also remained subdued due to sell-off in sovereigns, though the intensity of sell off was somewhat lower. The 5 year AAA and 10 year AAA bond ended the week in red at 9.55% and 9.51% respectively, up 3-4 bps. Due to steep sell off in sovereigns, the credit spreads for 5 year and 10 year AAA bonds narrowed by 7-11 bps, to close at 77 and 79 bps respectively.
• Liquidity remained tight during this week as well, due to delay in government spending as well excess covering of CRR product by Banks in the first week of reporting fortnight. The average LAF borrowing stood higher at Rs. 1.76 Tn compared to Rs.1.70 Tn in the previous week. Some banks also tapped the high cost marginal standing facility, due to shortage of SLR securities. Both the call rates and the CBLO rates were volatile, trading in wide band of 8%-15%. While the call rates touched a high of 15%, the CBLO rates traded around 12%.
• The money market yields softened a bit during the week on good amount of buying by Mutual Funds ahead of year end closing. While the 3 month CD rates moved down by 25 bps to close at 10.7%, the 1 year CD rates eased by 35 bps to close 10.15% for the week.
The Week Ahead
• The RBI is set to start the next year's borrowing in the coming week with an issuance of Rs.180 Bn. While the heavy supply will keep the rates under pressure, the market may also be wary of any RBI moves on OMO while bidding up the yields too high. Next week being a truncated week with only 2 trading days, we expect the 10 year to range between 8.45%-8.65%.
• As the banks have covered excess product towards their CRR requirement in the previous week, the LAF borrowing is likely to trend lower to around 1.00 – 1.15 Tn in the coming week. Further, the liquidity is likely to improve on redemptions as well as government spending in the coming week.
• The corporate bond yields are likely to remain range bound and track the sovereigns. However, the money market yields are likely to continue their easing trend. We expect the money market rates to ease further from the current levels, as the liquidity situation is likely to improve going forward.
Regards,
Gaurav Agarwal
Head Dealer
DENIP Consultants Pvt Ltd
• As the banks have covered excess product towards their CRR requirement in the previous week, the LAF borrowing is likely to trend lower to around 1.00 – 1.15 Tn in the coming week. Further, the liquidity is likely to improve on redemptions as well as government spending in the coming week.
• The corporate bond yields are likely to remain range bound and track the sovereigns. However, the money market yields are likely to continue their easing trend. We expect the money market rates to ease further from the current levels, as the liquidity situation is likely to improve going forward.
Regards,
Gaurav Agarwal
Head Dealer
DENIP Consultants Pvt Ltd
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