Aug 18, 2014
 Money Markets:
  •  The truncated week ending on 01st August 14, witnessed an average daily net borrowing under LAF at Rs.10,490 cr as compared to previous week’s average of Rs.20,566 cr. The average MSF borrowing stood at Rs.767 cr. Total overnight liquidity shortfall stood at Rs.11,257 cr. RBI injected another Rs.20,003 cr from 7-day term repo.
  •  Money market rates plummeted during the week; with call rates ending at 8.10% as against 8.85% in the previous week. The CBLO rates ended at 8.05%, from previous week’s 8.75%.
 G-Sec Market:
  •  RBI conducted the weekly auction for securities 8.27% GS 2020, 8.40% GS 2024, 8 and 9.23% GS 2043 for a total notified amount of Rs.14,000 cr. The cut-offs for the securities came in at 8.55%, 8.52% and 8.76% respectively. The security 8.27% GS 2020 and the new 10-yr benchmark 8.40% GS 2024 were devolved on Primary Dealers to the extent of Rs.482 cr and Rs.2,963.5 cr respectively. The bid-cover ratio was at 2.61 as compared to 2.38 in the previous auction.
  •  The old benchmark 10-yr security 8.83% GS 2023 closed at 8.75% 8 bps higher w-o-w. The new 10-yr benchmark security 8.40% GS 2024 ended at 8.52%, 13 bps higher. The G-sec market opened flat post the rally in the new benchmark bond in the previous week. The G-sec prices however slipped as the RBI surprised with the consecutive auction in the new benchmark 10-yr bond. Also the higher notified amount of Rs.9,000 cr raised a supply concern for the G-sec. The g-sec lost further ground as the weekly auction witnessed huge devolvement amidst change in auction method.
  •  RBI revised the weekly G-sec auction method to multiple price auction (French auction) from uniform price auction (Dutch auction) in the view of increased demand for the Government paper.
  •  The OIS witnessed receiving on the shorter end. The 5-yr OIS closed at 7.92%, 2 bps higher from previous week levels; while the 1-yr OIS closed at 8.37%; 4 bps lower from previous week levels. The 1 – 5 yr spread widened on a weekly basis by 6 bps to end at -45 bps levels. The direction for the swap curve would be clear after the upcoming RBI policy announcement.
  •  RBI is scheduled to announce its third bi-monthly review of monetary policy on 5th Aug 2014. The markets are expecting the RBI to maintain status quo on interest rates.
 Corporate Bonds
  •  Mirroring the underlying negative sentiment the corporate debt market witnessed sell off during the week. The 10-yr AAA bond traded at a yield of 9.28%, 8 bps higher from its previous week levels of 9.20%. The yield on 1-yr AAA bond ended at 8.90%, 10 bps higher from its previous week levels of 8.80%.
  •  In the primary corporate bond market: Reliance Utilities & Power issued 9.75% (semi-annual) 10-yr debt paper to raise Rs.2,000 cr. HDFC issued 9.11% 371-day debt paper to raise Rs.1,000 cr.
  •  Ratings agency FITCH has reaffirmed the ‘BBB-‘grade on Indian Sovereign debt. FITCH mentioned that the revision in rating is subject strong reforms taken by the new Government.
Macro Indicators
  •  Core IIP growth for June 2014 stood at 7.30%. The cumulative growth for Apr-Jun 2014 period stood at 4.60%.
  •  Apr – Jun 2014 Fiscal Deficit stood at Rs.2.98 lakh cr which was at 54.10% of full year budget estimates of Rs.5.31 lakh cr.
  •  RBI has extended the all in cost ceiling of External Commercial borrowings till 31st Dec 2014. The current ceiling stands at 350 bps over libor and 500 bps over libor respectively for 3-5 yr and > 5yr ECBs.
  •  RBI has extended the all in cost ceiling for import trade credits till 31st Dec 2014. The current limit stands at 350 bps over libor.
  •  Mr S.S.Mundhra has been appointed as the Deputy Governor of the RBI. Mr.Mundhra will be in charge of the banking supervision, currency management, financial stability and rural credit department.
  •  India’s CPI inflation stood at 7.31% in June 2014 as against 8.28% in May 2014.
  •  Monthly WPI inflation stood at 5.43% in June 2014, as against 6.01% in May 2014.

 Global Markets.
  •  US Q2 2014 GDP registered a robust 4% growth after contracting 2.10% in the previous quarter. The consumer spending which covers 70% of the GDP expanded by 2.50%.
  •  US Non-Farm Payrolls added 209,000 new jobs in July 2014 as against 298,000 in June 2014. The unemployment rate increased to 6.20% in July 2014 from 6.10% in the previous month.
  •  The US FOMC announced another round of bond tapering as the monthly bond purchases were cut by $10 bn, taking the monthly purchases to $10 bn in MBS securities and $15 bn in US treasuries. The FOMC in its statement downplayed the recent gains in labour market.
  •  Euro Zone CPI slowed to 0.40% in Jul 2014 from 0.50% in June 2014, reaching slowest level in 5 years. The unemployment rate fell to 11.50% in June 2014 from 11.60% in the previous month.
  •  S&P declared a default for Argentina as the country was unable to pay $539 mn interest due on its 2033 maturing bonds. The country missed a 2-day deadline as it failed to negotiate settlement with hedge funds in US court.
  •  Following the EU, US announced fresh round of sanctions on Russia over Ukraine issue. The US imposed sanctions on Russian sectors of weapons, energy and finance. US has barred dealing of US entities with 3 major banks of Russia.

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