Sep 15, 2014
 Money Markets:
  • The week ending on 12th September 14, witnessed an average daily net borrowing under LAF at Rs.827 cr as compared to previous week’s average surplus of Rs.9,559 cr. The average MSF borrowing stood at Rs.228 cr. Total overnight liquidity deficit stood at Rs.1,055 cr.
  • Money market rates were unchanged during the week; with call rates ending at 7.90% as against 7.85% in the previous week. The CBLO rates ended at 7.80%, from previous week’s 7.40%.
  • Additionally, RBI injected total Rs.41,184 cr through 3-day, 4-day and 14-day term repo during the week. Whereas the RBI extracted Rs.8,086 cr through the overnight and 3-day variable rate reveres repo auctions.
 G-Sec Market:
  • The week under review did not have any scheduled G-sec auction
  • The new benchmark 10-yr security 8.40% GS 2024 closed at 8.50% 2 bps lower w-o-w. The G-sec market opened flat at the start of the week. There was caution ahead of the inflation and IIP data release towards the end of the week. The G-sec markets rallied a little as the markets got a hint of the possible announcement of buyback by the Government. The absence of weekly auction supply however failed to trigger any strong demand for the g-sec which ended flat towards the end of the week.
  • The OIS witnessed range-bound trading during the week. The 5-yr OIS closed at 8.02%, 1 bp lower from previous week levels; while the 1-yr OIS closed at 8.46%; 1 bp higher from previous week levels. The 1 – 5 yr spread remained unchanged on a weekly basis to end at -44 bps levels. The OIS may continue to witness range bound trading in the absence of further cues.
  • The Government has announced a buyback of Rs.20,000 cr worth of G-sec through a reverse auction. MoF has cited comfortable cash position on the back of 9% growth in indirect tax revenue in Aug 2014. RBI has notified 16th Sept 2014 as the date for auction.
 Corporate Bonds
  • The corporate bond market also witnessed a lackluster trading during the week. The 10-yr AAA bond traded at a yield of 9.32%, 2 bps lower from its previous week levels of 9.34%. The yield on 1-yr AAA bond ended at 9.10%, 10 bps higher from its previous week levels of 9.05%.
  • In the primary corporate bond market: IDBI Bank issued 9.27% (semi-annual) 10yr bonds to raise Rs.1,000 cr. Rural Electrification Corp issued 8.97% 2-yr bond to raise Rs.2,750 cr.
  • In the global market ICICI bank issued 3.57% Mar 2020 maturing bonds to raise $500 mn. The issue was priced at 180 bps + 5yr UST and will be offered under both 144a and RegS.
  • RBI conducted an auction of 5/10 year SDL papers on behalf of 10 State Governments for a total notified amount of Rs.8,980 cr. Against this RBI received competitive bids worth Rs.35,759 cr. The entire consideration was sold off without any devolvement on the Primary Dealers.
  • Foreign Investors bid for Rs.4,963 cr against an offered amount of Rs.3,117 cr by NSE in the unutilized FII debt limit auction. The auction witnessed a robust response with the cut-off coming at 5.7 bps. This compared with previous month auction of Rs.3,208 cr which saw bids worth only Rs.3,640 cr and cut-off of 0.0036 bps.
  • RBI has permitted Foreign Portfolio Investors to hedge their currency risk on coupon receipts from debt investments, falling due in 12-month period. However the hedge contracts are not eligible for cancellation and re-booking but are eligible for roll-over before receipt of coupon.
 Macro Indicators
  • India’s IIP growth stood at 0.50% in July 2014 against 3.40% growth in previous month. The July number was at 4-month low.
  • RBI Governor warned against a sudden reversal in the global interest rates.
  • RBI purchased net $5.45 bn in July 2014 in the spot market. The outstanding net purchase in the forwards stood at $5.40 bn in July 2014. The RBI was a buyer for 4th consecutive month in the spot market.
  • RBI revised the upper age limit for MD, CEOs and Whole Time Director of private banks to 70 years.
  • 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.
  • US Retails sales rose by 0.60% in Aug 2014 against a 0.30% expansion in the previous month.
  • US budget deficit for Aug 2014 dropped 13% YoY to $128.7 bn. US is very likely to post a record low annual budget deficit since 2008.
  • ECB President Draghi urged the Euro Zone Governments to increase spending in order to spur investments.Draghi also called for state guarantee provisions to small business loans.
  • BOE Governor Carney stated the central bank can start rate hikes as early as spring of 2015. Carney added that the UK’s economic recovery has exceeded expectations but warned pace of wage increases will be the key to the decision.
  • Carney warned that the monetary union is necessary for a common currency and cited that an independent Scotland will require huge reserves in order to retain Sterling as the common currency.
  •  Ratings agency Moody’s cut the rating outlook for Brazil to negative while maintaining the rating at Baa2. Moody’s warned on slowing economy and pressure on the new Government to tighten budget deficit which is likely to increase a threat of rating downgrade in the coming years.
  • China’s Factory output expanded at a weakest pace in almost 6 years. The Industrial Output rose by 6.90% in Aug 2014 against 9% growth in July 2014 and market forecasts of 8.80% growth.
  • EU and US announced fresh round of sanctions on Russia over the Ukraine-Crimea issue.
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