Aug 31, 2015
Money Markets:

  •  The week ending on 28th August 15, witnessed an average overnight net liquidity deficit under LAF at Rs.305 cr as compared to previous week’s average liquidity deficit of Rs.123 cr. The average MSF borrowing stood at Rs.61.26 cr.
  • Money market rates eased a little during the week; with call rates ending at 7.05% as against 7.15% in the previous week. The CBLO rates ended at 7.20%, from previous week’s 7.00%.
  • During the week, RBI injected total Rs.94.5 cr through term repos and absorbed Rs.392 cr through term reverse repos.
G-Sec Market:
  • RBI conducted weekly auction for securities 7.68% GS 2023, 7.72% GS 2025, 8.24% GS 2033 and 8.13% GS 2045 for a total notified amount of Rs.14,000 cr. The cut-offs for the securities came in at 7.91%, 7.78%, 8.03% and 7.99% respectively. All the four securities were fully subscribed with a bid-cover ratio of 3.00 as compared to 2.91 in the previous auction.
  • The benchmark 10-yr security 7.72% GS 2025 closed at 7.78%, unchanged w-o-w. The G-sec market witnessed a sharp sell-off during the week as the global markets continued to witness extreme volatility over the Chinese turmoil. The 10-yr benchmark yield reached 7.91% during the week, its highest levels since issuance. The markets however recovered after the PBOC announced easing measures. The rebound in crude prices kept the g-sec gains in check. The g-sec closed flat towards the end of the week.
  • The OIS curve ended flat WoW. The 5-yr OIS closed at 6.91%, 2 bps lower from previous week levels; while the 1-yr OIS closed at 7.28%; 3 bps lower from previous week levels. The 1 – 5 yr spread widened by 1 bps to end at -37 bps levels.
  • RBI has suggested the Finance Ministry to buyback around Rs.6,500 cr of WPI linked inflation bonds as the RBI is now adopted CPI as the key measure of inflation and the hence the WPI index has become less relevant.
Corporate Bonds

  • The corporate bond yields ended slightly lower amidst the huge volatility seen during the week. The 10-yr AAA bond traded at a yield of 8.32%, 4 bps lower than previous week levels of 8.36%. The yield on 1-yr AAA bond ended at 8.00%, unchanged from previous week levels.
  • The major corporate debt issuances during the week were: Aditya Birla Finance issued 9.25% 10-yr debt paper to raise Rs.33 cr. SAIL issued 8.27% 5-yr bonds to raise Rs.265 cr. IL&FS issue of 8.68% 10-yr debt paper to raise Rs.100 cr. Indiabulls Housing Finance issued 9.10% 3-yr debt paper (15-month Put option) to raise Rs.300 cr.
  • RBI auctioned 10 year SDL papers on behalf of 12 State Governments. Against a notified amount of Rs.8,950 cr, RBI received bids worth Rs.26,987 cr which was fully accepted by the RBI.
  • India is likely to join the Euroclear settlement for Government bonds in another 3-4 months as the clearances from the Ministry of Finance are awaited.
  • RBI’s 4th August 2015 minutes of the meeting show that 4 out of 7 members of the technical advisory committee had suggested a 25 bps cut in interest rates.
  • RBI plans to auction Rs.561 cr on FII limit in Government Securities through the BSE’s Ebidxchange platform on 31st Aug 2015.
Macro Indicators

  • India’s Apr-Jun 2015 qtr GDP growth is expected to be 7.40% as against a 7.50% GDP growth in the previous qtr.
  • Governor Rajan ruled out any quick fixes for the market crash and said that he expects India to be a favored investment destination once the volatility subsides.
  • Ratings agency ICRA sees NPA’s in the banking sector to rise to 5.90% by Mar 2016 from 4.40% in FY 2014-15. CARE Ratings expects higher slippages in H1 2015 but expects better recovery and pick-up in economic activity in H2.
  • RBI in its annual report for FY2015 has mentioned that lowering inflation and helping banks clean up balance sheet is a priority in the short-term.
  • The Government has decided to abandon the land bill and has allowed it to lapse on 31st Aug 2015.
  • Monthly WPI inflation stood at -1.40% in July 2015, as against -0.90% in June 2015.
Global Markets.

  • New York Fed President Dudley said that the chances of a September rate hike looks less compelling than before on account of threat posed to the US recovery due to recent market turmoil.
  • Fed Vice Chairman Stanley Fischer said in the Jackson Hole speech that the US inflation is likely to rebound as the pressure from dollar will ease and that would allow Federal Reserve to hike the interest rates.
  • US Q2 2015 GDP grew by 3.70% against market forecast of 3.20% and previous qtr growth of 2.30%.
  • US durable goods order rose 2% in July 2015 after a 4.10% increase in June 2015.
  • ECB executive board member Peter Praet said that the ECB can expand its QE program in case the recent slump in commodities poses risks to growth.
  • The PBOC announced a cut in the interest rates by 25 bps and slashed the Reserve Ratio Requirement (RRR) by 50 bps in order to rein in the tumbling markets. The 1-yr lending and deposit rates now stand at 4.60% and 1.75% respectively. The RRR stands at 18% post cut.
  • Japan’s core CPI for July 2015 stood at 0.00% against a forecast -0.02%. The July household spending declined by 0.20% YoY casting doubts over recovery.
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