Oct 27, 2014
Money Markets:
  • The truncated week ending on 22nd October 14, witnessed an average daily net liquidity shortfall under LAF at Rs.12,117 cr as compared to previous week’s average liquidity shortfall of Rs.1,897 cr. The average MSF borrowing stood at Rs.4,293 cr. Total overnight liquidity shortfall stood at Rs.16,410 cr.
  • Money market rates surged as the liquidity tightened; with call rates ending at 8.80% as against 7.80% in the previous week. The CBLO rates ended at 8.65%, from previous week’s 7.45%.
  • RBI injected total Rs.31,571 cr through 14-day term repo, overnight variable rate repo and 5-day variable rate repo auctions, during the week.
 G-Sec Market:
  • The Festival holiday shortened week under review did not have any scheduled G-sec auction from the RBI.
  • The new benchmark 10-yr security 8.40% GS 2024 closed at 8.36% 3 bps lower w-o-w. The G-sec market opened stronger on the back of Government’s announcement of deregulation of diesel prices. The g-sec market rallied following the pull back in the stock markets as the state election results provide a promise of more stellar reforms from the Government. Absence of fresh G-sec supplies further helped the bond prices however the gains in the g-sec remained muted as the liquidity position remained tight.
  • The OIS curve witnessed receiving across tenors. The 5-yr OIS closed at 7.50%, 6 bps lower from previous week levels; while the 1-yr OIS closed at 8.03%; 19 bps lower from previous week levels. The 1 – 5 yr spread remained widened on a weekly basis by 13 bps to end at -53 bps levels. The OIS swap curve may witness further receiving as the interest rate sentiment continues to remain positive and the expectations on rate cut built up.
 Corporate Bonds
  • The corporate bond market continued to witness buying interest during the holiday shortened week. The 10-yr AAA bond traded at a yield of 8.93%, 5 bps lower than previous week levels of 8.98%. The yield on 1-yr AAA bond ended at 8.60%, 15 bps lower than previous week levels of 8.75%.
  • The major corporate debt issuances during the week were: LIC Housing Finance issued 9.10% Feb 2018 maturing debt security to raise Rs.300 cr.
  • In the international markets IDBI Bank issued 4.125% 5.5 year bonds to raise USD 350 mn. The issue was priced at 275 bps over equivalent US Treasury yield. Tata Motors issued 4.625% 5.5yr notes to raise $500 mn and also issued 5.75% 10-yr notes to raise another $200 mn.
  • FII’s bid for Rs.2,094 cr against an offered amount of Rs.646 cr in the Government Securities FII limit auction by NSE.
  • RBI has notified the auction for 5/10 yr SDL papers on behalf of 10 State Governments totaling to Rs.9,650 cr.
 Macro Indicators
  • RBI Technical Advisory Committee minutes of the 24th Sept Monetary Policy meeting showed that Governor Rajan overruled the members views of cutting the benchmark interest rates as he believed that the food inflation may surge on account of deficient monsoon. The minutes show that 4 out of 7 members were in favour of rate cut.
  • RBI notified changes in reporting of distressed assets, allowing banks to be exempted from reporting crop loans even in case of higher than Rs.5 cr fund based exposure. RBI also eased the rules for reporting of principal and interest overdue for more than 6 months.
  • RBI has notified the re-distribution of portfolios under the four deputy Governors, allocating Financial Markets & Infrastructure, Monetary Policy & Research, Regulation & Risk Management and Supervision & Inclusion to HR Khan, Urjit Patel, R.Gandhi and SS Mundhra respectively.
  • RBI notified the phased reduction in HTM (Held to Maturity) limit for SLR securities held by the regional rural banks.
  • India’s CPI inflation stood at 6.46% in September 2014 as against 7.80% in August 2014.
  • Monthly WPI inflation stood at 2.38% in September 2014, as against 3.74% in August 2014.

     Global Markets.

  • US CPI remained unchanged at 1.70% in Sept 2014 as compared to the previous month, beating market expectations of 1.60%.
  • US Jobless claims touched 14-yr lows as it increased by 17,000 to 283,000 for the week ended 18th Oct 2014.
  • ECB concluded stress test of 130 major banks in the Euro region. Results showed that 25 banks which are mainly from Italy, Cyprus and Greece failed the tests. The combined capital shortfall at the end of 2013 stood at EUR 25 bn.
  • UK housing prices rose 2.60% in Sept 2014. Investment Bank Barclays has revised its BOE interest rate hike forecast from Nov 2014 to Feb 2015.
  • China’s GDP grew by 7.30% in the Jul – Sep 2014 qtr as compared to a 7.50% growth in the previous qtr and the market expectations of 7.20% growth. Factory output rose 8% in Sep 2014 after a 6-yr growth of 6.90% in Aug 2014.
  • European Commission has announced a total fine of EUR 94 mn ($120 mn) to JP Morgan, Credit Suisse and UBS over CHF libor manipulation.
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