v10 Yr bond infringes the 8.20% level; sentiment remains subdued
Government securities
Bond yields edged higher as sentiment remained subdued on concerns of the
additional strain on liquidity due to the outflow of advance taxes in mid December
approximated to be INR 550 bn. Market participants are hopeful of the central
bank intervention to provide respite from the stiff liquidity situation, at its policy
meet on 16th Dec. The benchmark bond closed 3 bps higher at 8.21% while the
8.13% 2022 maturity bond closed 4 bps higher at 8.21%.
Concerns over the liquidity and the selloff in the bond market drove swaps rates
higher. The one swap closed 6 bps higher at 6.91% while the five year swap ended
7 bps higher at 7.33%.
Non-SLR market
Banks mopped up INR 40 bn in Certificate of Deposit. Mutual fund preferred to
invest in 3 month CD as the spread between the 3 month & 1 Yr CD narrowed to
25-30bps. Allahabad Bank placed INR 15.50bn CD maturing on 8th Mar, 2011 at
8.90% while Corporation Bank placed INR 5bn March maturity CD at 8.85%.
Punjab National Bank and IOB placed INR 10bn & INR 7bn respectively in March
maturity CD at 8.95%. Bank of India placed INR 250mn in 1 Yr CD at 9.12% while
LIC Housing Finance placed 2 Yr NCD amounting to INR 2bn at 9.40%
Money markets
Overnight rates ended firm at 6.72%, well above the central bank’s lending rate,
at the onset of the new fortnightly reporting cycle. The temporary flexibility given
to banks allowing their holdings for SLR to fall to 23% of deposits has helped
control the call rates. However with the outflow of the third installment of
corporate taxes by 15th Dec will further strain the liquidity situation. RBI injected
INR 1.15 trn in to the system through the LAF today compared to the average of
INR 1 trn in the last fortnight.
