Sep 22, 2014
 Money Markets:
  • The week ending on 19th September 14, witnessed an average daily net borrowing under LAF at Rs.5,701 cr as compared to previous week’s average shortfall of Rs.827 cr. The average MSF borrowing stood at Rs.191 cr. Total overnight liquidity deficit stood at Rs.5,892 cr.
  • Money market rates remained elevated during the week; with call rates ending at 7.95% as against 7.90% in the previous week. The CBLO rates ended at 7.80%, from previous week’s 7.80%.
  • Additionally, RBI injected total Rs.41,184 cr through 14-day, overnight and 12-day term repo during the week.
 G-Sec Market:
  • RBI conducted the weekly auction for securities 8.27% GS 2020, 8.40% GS 2024, 8.32% GS 2032 and 9.23% GS 2043 for a total notified amount of Rs.12,000 cr. The cut-offs for the securities came in at 8.52%, 8.46%, 8.66% and 8.68% respectively. All the four securities were fully subscribed. The bid-cover ratio was at 3.36 as compared to 3.55 in the previous auction.
  • The new benchmark 10-yr security 8.40% GS 2024 closed at 8.45% 5 bps lower w-o-w. The G-sec market opened stronger on the back of buyback announcement and lower inflation number in the previous week. The easing fiscal concerns and the comments from the finance secretary over the possible cut in the borrowing helped the g-sec yields to touch 11-month lows during the week. The g-sec market held on to its gains for the later part of the week as the markets are awaiting the announcement of FY14-15 H2 borrowing calendar for dated Government securities.
  • The OIS witnessed receiving on the longer end during the week. The 5-yr OIS closed at 7.88%, 14 bps lower from previous week levels; while the 1-yr OIS closed at 8.43%; 3 bps lower from previous week levels. The 1 – 5 yr spread narrowed on a weekly basis by 11 bps to end at -55 bps levels. The OIS may witness further receiving as the positive sentiment may continue on the back of easing fiscal concerns.
  • The RBI on behalf of Government conducted a repurchase auction in dated Government Securities. Against a notified amount of Rs.20,000 cr the RBI received offers worth Rs.70,053 cr of which RBI accepted offers worth Rs.12,761 cr.
  • Finance Secretary Mayaram stated that the Government may not need to borrow the Rs.16,000 cr which was reduced in the H1 2014-15 borrowing incase the growth remains around 5.60-5.70%.
 Corporate Bonds

  • The corporate bond market witnessed robust buying interest during the week. The 10-yr AAA bond traded at a yield of 9.24%, 8 bps lower from its previous week levels of 9.32%. The yield on 1-yr AAA bond ended at 9.05%, 5 bps lower from previous week levels of 9.10%.
  • In the primary corporate bond market: NTPC issued 9.17% 10-yr bonds to raise Rs.1,000 cr. PFC (Power Finance Corp) issued 8.95% 13-month and 9.32% 5-yr bond to raise aggregate Rs.2,100 cr.
  • SEBI clarified that the Mutual Funds can have position limits in Interest Rate Futures (IRF) similar to exchange trading members.
 Macro Indicators
  • India’s Aug 2014 trade deficit fell to $10.84 bn against $12.23 bn in July 2014. Exports registered a growth of 2.34% to $26.96 bn whereas imports grew by 2.10% to $37.80 bn.
  • Lower import growth was seen on the back of sliding global crude prices. The oil imports dropped 11%. Gold imports meanwhile surged 176% to $2.04 bn in Aug 2014.
  • RBI Governor Rajan ruled out any immediate rate cuts post the lower inflation number. Rajan also added that he is not in favour of further hike in FII debt limit.
  • Finance Secretary Arvind Mayaram suggested to the G20 to extend currency swap lines in order to curb the forex volatility in the emerging markets.
  • India’s CPI inflation stood at 7.80% in August 2014 as against 7.96% in July 2014.
  • Monthly WPI inflation stood at 3.74% in August 2014, as against 5.19% in July 2014.

 Global Markets.
  • In the US FOMC meet the Federal Reserve voted for further tapering of $10 bn in monthly asset purchases. The QE is scheduled to come to an end by next FOMC meet. The FOMC stated that the inflation level is much below the target. FOMC members voted 8-2 in the favour of policy decision.
  • Yellen said that Fed will continue with the accommodative stance. The Fed Funds Target Rate for end of 2015 was revised up to 1.375% from 1.125%. The 2017 end target stood at 3.75%.
  • Ratings agency Moodys retained the stable outlook on US’ Aaa credit rating, adding that despite a lower deficit and stable debt ratios, the social security spending over the next decade is likely to rise and pose a challenge for the country.
  • The Targeted LTRO program from the ECB witnessed a lukewarm response as the Euro region’s banks availed only as much as EUR 82.60 bn worth of funds under the facility.
  • Scotland rejected independence from the UK region as 55.3% of the voters voted against independent Scotland.
  • Japan’s trade deficit narrowed to JPY 947 bn ($8.80 bn) in Aug 2014, which was 2.40% lower than the month before. Also the Aug 2014 was the 26th consecutive month of trade deficit.
  •         People’s Bank of China (PBOC) announced stimulus measures as it plans to inject CNY 100 bn in each of the top 5 Chinese banks (total $81 bn) for a period of 3 months.

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