Nov 24, 2014
 Money Markets:

  • The week ending on 21st November 14, witnessed an average daily net liquidity shortfall under LAF at Rs.9,048 cr as compared to previous week’s average liquidity shortfall of Rs.7,165 cr. The average MSF borrowing stood at Rs.307 cr. Total overnight liquidity shortfall stood at Rs.7,617 cr.
  • Money market rates remained elevated during the week; with call rates ending at 7.85% as against 7.90% in the previous week. The CBLO rates ended at 7.90%, from previous week’s 7.90%.
  • During the week, RBI injected total Rs.24,141 cr through 14-day term repos and extracted Rs.4,467 cr through Overnight and 3-day variable rate reverse repo auctions.

 G-Sec Market:

  • RBI conducted weekly auction for securities 8.27% GS 2020, 8.24% GS 2033, 8.30% GS 2040 and New 12-year security for a total notified amount of Rs.14,000 cr. The cut-offs for the securities came in at 8.22%, 8.21%, 8.26% and 8.15% respectively. All the four securities were fully subscribed with a bid-cover ratio of 3.17 as compared to 3.07 in the previous auction.
  • The benchmark 10-yr security 8.40% GS 2024 closed at 8.17% 5 bps higher w-o-w. The G-sec market continued to rally on the strong bullish sentiment helped by the positive comments from the Ministry of Finance, which is seen putting pressure on the RBI to cut rates. The weekly auction cut-offs witnessed aggressive bidding by the market participants. The g-sec market continues to witness strength ahead of the important GDP data release in the following week and the RBI’s bi-monthly monetary policy meet on 2nd Dec 2014.
  • The OIS curve witnessed receiving across the curve. The 5-yr OIS closed at 7.36%, 12 bps higher from previous week levels; while the 1-yr OIS closed at 7.95%; 11 bps higher from previous week levels. The 1 – 5 yr spread narrowed on a weekly basis by 1 bp to end at -59 bps levels. The OIS may continue to trade range bound ahead of the GDP data release and RBI policy.
 Corporate Bonds

  • The corporate bond witnessed a rally on the back of bullish interest rate sentiment. The 10-yr AAA bond traded at a yield of 8.61%, 9 bps lower than previous week levels of 8.70%. The yield on 1-yr AAA bond ended at 8.45%, unchanged from previous week levels.
  • The major corporate debt issuances during the week were: MTNL issued 8.41% 10-yr bonds to raise Rs.1,500 cr. MTNL is also offering a 8.28% Semi-annual and 8.45% annual coupon alternative for 10-yr with 9-yr Call Option.
  • Axis bank issued 3.25% 5.5yr bonds to raise USD 500 mn. The bonds maturing in 2020 were priced at 170 bps over the 5-yr UST yields. The bonds have been issued under RegS/ 144A.
  • NTPC issued 4.375% 10-yr unsecured bonds to raise USD 500 mn. The issue was priced at 205 bps over equivalent UST yields.
  • RBI plans to auction 5/10 yr SDL papers on behalf of 15 State Governments for a total notified amount of Rs.15,150 cr.
  • Ratings agency Moodys revised the outlook on Indian corporates from negative to stable, citing improved economic prospects and pro-reform policies by the Government. Moodys expects Indian corporates to face better credit conditions in 2015.

 Macro Indicators

  • India’s exports contracted 5% YoY to 7-,month lows of $26.09 bn in Oct 2014, whereas the imports rose 3.16% YoY to $39.45 bn. The trade deficit for Oct 2014 stood at $13.36 bn which was higher 26% YoY. However it was lower than Sept 2014 trade deficit of $13.36 bn.
  • RBI has revised the export realization period for all exporters from the date of export to 9 months from earlier 12 months.
  • RBI provided flexibility to ECB borrowers, permitting them to park the ECB proceeds in term deposits with AD banks onshore for 6 months.
  • Ministry of Coal announced the e-auctions of 74 coal blocks by 11th Feb 2014.
  • India’s CPI inflation stood at 5.52% in October 2014 as against 6.46% in September 2014.
  • Monthly WPI inflation stood at 1.77% in October 2014, as against 2.38% in September 2014.

 Global Markets.

  • US FOMC 28-29th Oct 2014, minutes of the meting showed Fed members voting 9-1 in the favour of withdrawing bond purchases under QE. The FOMC acknowledged the improvement in US economic growth and the labour market. However the FOMC expressed concerns over the inflation outlook and mentioned that there was no consensus on the timing of the interest rate hikes.
  • Speaking at the European Parliament, Draghi said that ECB remains committed to using additional unconventional instruments for easing. Draghi clarified that buying Sovereign bonds remains an option for the ECB.
  • German ZEW economic sentiment index rose to 11.5 in Nov 2014 as compared to -3.6 in the previous month. The Sept 14 was the first negative reading since Nov 2012.
  • UK CPI inflation rose 1.30% in Oct 2014, in line with market expectations and higher than previous month’s 1.20%. The Sept 14 number was at 5-yr lows.
  • Japanese PM Shinzo Abe deferred the planned sales tax hike and called for early elections. The move came in as a response to the reports of Japan entering into recession again.
  • PBOC unexpectedly cut its benchmark lending rate by 40 bps and slashed deposit rates by 25 bps. PBOC further allowed Chinese Banks to decide their own deposit rates upto 20% above benchmark form 10% previously.
  • China’s HSBC MarkIt PMI stood at 50 in Nov 2014 as compared to a final reading of 50.4 in the previous month.
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