Feb 08, 2016
Money Markets:
  • The week ending on 05th February 16, witnessed an average overnight net liquidity deficit under LAF at Rs.2,719 cr as compared to previous week’s average liquidity deficit of Rs.12,719 cr. The daily average MSF borrowing stood at Rs.638 cr.
  • Money market rates eased a little during the week; with call rates ending at 6.65% as against 7.05% in the previous week. The CBLO rates ended at 6.35%, from previous week’s 7.00%.
  • During the week, RBI injected total Rs.56,509 cr through term repos, whereas the RBI absorbed Rs.14,644 cr through term reverse repos.

G-Sec Market:
  • RBI conducted weekly auction for securities 7.68% GS 2023, 7.59% GS 2026, 7.73% GS 2034 and 8.17% GS 2044 for a total notified amount of Rs.14,000 cr. The cut-offs for the securities came in at 7.77%, 7.70%, 8.19% and 8.26% respectively. All the four securities were fully subscribed. The bid-cover ratio stood at 3.08 as compared to 2.51 in the previous auction.
  • The old benchmark 10-yr security 7.72% GS 2025 closed at 7.82%, 4 bps higher w-o-w. The new benchmark 7.59% GS 2026 closed at 7.71% 7 bps higher w-o-w. The Gilts market opened on a steady note. The traders were cautious and abstained from taking positions ahead of the RBI's monetary policy release. The RBI's announcement of status of quo on interest rates was in line with the market expectation, however the policy tone was perceived to be a little hawkish by the G-sec market. The G-sec corrected sharply post the policy announcement. The old 10-yr benchmark yields touched highs last seen in Aug 2015 as it traded past the 7.85% mark. The weakening rupee and the surge in crude prices continued to exert pressure on the G-sec yields.
  • The OIS witnessed some paying during the week. The 5-yr OIS closed at 6.77%, 5 bps lower from previous week levels; while the 1-yr OIS closed at 6.95%; 8 bps higher from previous week levels. The 1 – 5 yr spread narrowed by 3 bps to end at -18 bps levels.
  • In its sixth bi-monthly review of monetary policy for 2015-16 the RBI kept the benchmark Repo rate unchanged at 6.75%, consequent to which the Reverse Repo and Marginal Standing Facility rate remain unchanged at 5.75% and 7.75% respectively.
  • RBI maintained CRR at 4% of NDTL and continues to provide overnight liquidity under repo at 0.25% of NDTL. While the liquidity support under 14-day and higher tenor repo will continue at 0.75% of NDTL.
  • Despite the status quo on rates the RBI said that the policy stance remains accommodative. RBI expects the inflation to remain anchored and stuck to its target for CPI at 5% in Mar 2017. However RBI added that the target is without factoring the impact of 7th Pay Commission implementation and the projection is likely to change once the implementation is done.
  • RBI conducted buyback of securities 7.59% GS 2016, 10.71% GS 2016 and 7.02% GS 2016. Against a total notified amount of Rs.20,000 cr RBI received offers worth Rs.53,353.41 cr of which it accepted Rs.16,650 cr.
  • RBI announced OMO purchases worth Rs.10,000 cr to be held on 8th Feb 2016. RBI also plans to repurchase 1.44% Inflation Indexed Government Stock 2023 on behalf of the Government for ab aggregate amount of Rs.6,500 cr.

Corporate Bonds
  • The corporate bond market continued to witness sell-off. The 10-yr AAA bond traded at a yield of 8.47%, 5 bps higher from previous week levels of 8.42%. The yield on 1-yr AAA bond ended at 8.15%, 10 bps higher from previous week levels of 8.05%.
  • The major corporate debt issuances during the week were: LIC Housing Finance issued 8.58% 8-yr (Mar 2019 Put option) bond to raise Rs.200 cr. Raymond issued 9.52% 38-month debt paper to raise Rs.100 cr. PNB Housing finance issued 8.33% 65-month debt paper to raise Rs.500 cr. ONGC Mangalore issued 8.40% 37-month debt paper to raise Rs.500 cr.

Macro Indicators
  • India’s Nikkei Services PMI stood at 54.3 in Jan 2016 as against 53.6 in Dec 2015.
  • RBI announced easing of regulations for startups to raise foreign venture capital through innovative instruments.
  • Government has banned zero duty import of capital goods for power plants.
  • Monthly WPI inflation stood at -1.73% in December 2015 whereas the CPI inflation stood at 5.61%.

Global Markets.
  • US Non-Farm Payrolls added 151,00 new jobs in Jan 2016, lower than market forecast of 190,000 and previous month’s 292,000. The unemployment rate fell to 4.90% from 5% in Dec 2015.
  • US ISM Manufacturing dropped to 48.2 in Jan 2016 from 48 in Dec 2015.
  • US Consumer Spending stood at 0.50% in Jan 2016, unchanged from Nov 2015.
  • US ADP employment rose to 205,000 in Jan 2016 from 267,000 in Dec 2015.
  • Euro Zone PMI declined to 52.3 in Jan 2016 from 53.2 in Dec 2015.
  • Bank of England kept its benchmark interest rate unchanged at 0.50% and maintained asset purchase program at GBP 375 bn. All 9 voters in the Monetary Policy Committee voted in favour of status quo on interest rate. BOE slashed its GDP forecast by 0.10% to 2.20% in 2016 and 2.50% in 2017.
  • China’s Caixin Services PMI stood at 6 month high at 52.4 in Jan 2016 as against 50.2 in Dec 2015.
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