Debt Market Weekly Report Aug 30, 2010 Money Markets: The week ending on 27th August 10 saw a significant improvement in liquidity. The RBI on an average absorbed Rs.15,860 cr daily from the system via the LAF Reverse Repo window . Whereas the average liquidity infusion for the previous week stood at Rs.14,849 cr through the LAF Repo window. Money market rates fell ahead of the reporting Friday, with the Call rates ending at 4.53% on Friday as against 5.68% observed a week earlier. The CBLO rates ended at 4.13% lower than the previous week’s levels 5.62%. G-Sec: RBI set the cutoffs for security 7.17% GS 2015 at 7.74%, 7.80% GS 2020 at 8.03% & 8.26% GS 2027 at 8.38%. The notified amount stood at Rs.5,000 cr, Rs.4,000 cr & Rs.3,000 cr respectively. The benchmark 7.80% GS 2020 devolved to the extent of huge Rs.1,387 cr (35%) on the primary dealers. Other two securities were fully subscribed. The benchmark 10-yr security 7.80% GS 2020 closed at 7.97%, a marginal rise of 1 bp WoW. The market witnessed a sell off in anticipation of a new 10-yr benchmark and the yield had reached an intra-week high of 8.07% however buying interest was seen at elevated levels. The market rallied towards the end of the week on better than expected cut-off prices form the auction and comments from RBI Governor Mr.Subbarao stating that, the global recovery remains uncertain and the domestic policy measures should be taken in anticipation of the evolving economic conditions. Also the RBI’s measures so far are having a visible impact on the inflationary expectations. The 10y-12y spread had inverted during the week from a level of 28 bps in the beginning of August. It had reached a low of –7 bps on Wednesday 25th August, but the rally towards the end of the week saw the spread rising to 3 bps. This is on account of the discomfort market is showing in holding the benchmark 10yr 7.80% GS 2010 as the outstanding amount is currently at Rs.44,000 cr and the 12-yr 8.13% GS 2022 is acting as temporary substitute. The OIS curve ended lower on a week on week basis. The 5-yr OIS closed 1 bp lower at 7.05%, while the 1-yr OIS fell by 15 bps to close at 6.13%. The 1 –5 yr spread widened on a weekly basis by 14 bps to end at 92 bps levels. The OIS curve may see some flattening as the lower end continues to stay under paying pressure on account of tight liquidity however the farther end may witness some receiving as the underlying g-sec yields fall from their recent highs. Corporate Bonds: The corporate bond markets witnessed some activity in the longer tenor papers with a demand from both the trader & investor segment. The 10-yr AAA bond traded at a yield of around 8.76%, 3bps lower from its previous week closing levels of 8.79%. The yield on 1-yr AAA bond closed unchanged at 7.85%, compared to previous week. Exim Bank issued 8.70% (annual) 10-yr paper for an amount Rs.300 cr. HDFC issuance of 8.40% (annual) 10-yr paper to raise Rs.250 cr. Reliance Capital issuance of 8.90% 3-yr for an amount of Rs.100 cr. NHB came up with the issue of 8.20% 3-yr paper for Rs.250 cr. Bank of Baroda issuance of 9.05% perpetual bond to raise Rs.700 cr. NABARD issuance of 7.50% 3-yr bond for an amount of Rs.500 cr (Put/ Call option at the end of 1-yr). Macro Indicators: The monthly WPI inflation fell to 9.97% in Jul, lower from 10.55% in Jun 2010. The Primary articles based weekly inflation came to 14.75%, 0.10% lower from its previous week levels of 14.85%. Food inflation eased to 10.05% for the week ended August 14th from 10.35% in the previous week. India’s credit growth as on 13th August 2010 stood at 20.10% YoY. Whereas the deposit growth stood at 14.10%. India’s trade deficit for the month of July 2010 stood at $12.93 bn as against $ 10.55 bn in June 2010. The trade deficit for FY 2010-11 is expected to be around $120 bn. The government in its annual trade policy review declared a fresh incentives package for exporters. The size of the package was fixed at Rs.1,000 cr. As per the Ministry of Commerce & Industry the key infrastructure sector comprising of coal, crude oil, petroleum & refinery, electricity, cement & steel grew by 3.2% in the month of July 2010. The growth rate has slowed down form 3.90% seen in the month earlier. Global Markets: The 2nd qtr US GDP growth was revised to 1.60% by the US commerce department from earlier estimates of 2.40% raising concerns over the pace of economic recovery. The 2nd qtr UK GDP growth stood at 1.20% as compared to the previous qtr. The pace has been fastest since 2001. On a YoY basis the UK economy grew by 1.70%. In an emergency meeting in Tokyo the Bank of Japan announced its expansion of its bank loan program. The BOJ plans increase the funds in the loan facility by JPY 10 tn to a total of JPY 30 tn. Fed chairman, Ben Bernanke promised to act incase unexpected developments further threaten the US recovery. His statement triggered speculations that Fed might undertake further debt buying. Archives Aug 30, 2010 Aug 23, 2010 Aug 23, 2010 Aug 16, 2010 Aug 09, 2010 Aug 03, 2010 Jul 26, 2010 Jul 19, 2010 Jul 12, 2010 Jul 05, 2010 Jun 29, 2010 Jun 21, 2010 Jun 14, 2010 Jun 07, 2010 May 31, 2010 May 24, 2010 May 17, 2010 May 07, 2010 May 04, 2010 May 04, 2010 Apr 26, 2010 Apr 16, 2010 Apr 09, 2010 Mar 26, 2010 Mar 19, 2010 Mar 12, 2010 Mar 05, 2010 Feb 26, 2010 Feb 19, 2010 Feb 11, 2010 Feb 05, 2010 Jan 29, 2010 Jan 22, 2010 Jan 15, 2010 Jan 08, 2010 Jan 01, 2010 Dec 18, 2009 Dec 11, 2009 Dec 04, 2009 Nov 27, 2009 Nov 20, 2009 Nov 16, 2009 Click on image to enlarge