Jan 27, 2015
 Money Markets:

  • The week ending on 23rd January 15, witnessed an average daily net liquidity shortfall under LAF at Rs.17,350 cr as compared to previous week’s average liquidity shortfall of Rs.17,728 cr. The average MSF borrowing stood at Rs.338 cr. Total overnight liquidity shortfall stood at Rs.17,688 cr.
  • Money market rates remained elevated during the week; with call rates ending at 7.85% as against 7.85% in the previous week. The CBLO rates ended at 7.90%, from previous week’s 8.00%.
  • During the week, RBI injected total Rs.85,953 cr through Overnight, 7-day variable rate repos and 14-day term repo.

 G-Sec Market:

  • RBI conducted weekly auction for securities 8.27% GS 2020, 8.60% GS 2028, 8.24% GS 2033 and 8.30% GS 2040 for a total notified amount of Rs.14,000 cr. The cut-offs for the securities came in at 7.66%, 7.73%, 7.73% and 7.66% respectively. All the four securities were fully subscribed with a bid-cover ratio of 3.19 as compared to 3.03 in the previous auction.  
  •  The benchmark 10-yr security 8.40% GS 2024 closed at 7.70% 1 bp lower w-o-w. The g-sec market opened on a positive note following the rally post the surprise rate cut in the week earlier. The G-sec market witnessed some profit booking during the week. The announcement of QE from the ECB was seen as a positive development for the Indian bond markets as a lot of global liquidity is expected to find its way into Indian debt with the market participants expecting further rate cuts from RBI. Some demand was seen in the short-dated papers towards the end of the week. However the 10-yr benchmark bond ended flat W-o-W.  
  •  The OIS curve traded range-bound during the week. The 5-yr OIS closed at 6.80%, 4 bps lower from previous week levels; while the 1-yr OIS closed at 7.52%; 1 bp higher from previous week levels. The 1 – 5 yr spread narrowed on a weekly basis by 5 bps to end at -72 bps levels. The OIS rates are expected to dip further on expectations of more rate cuts.

 Corporate Bonds

  • The corporate bond witnessed a profit booking during the week. The 10-yr AAA bond traded at a yield of 8.22%, 6 bps higher than previous week levels of 8.16%. The yield on 1-yr AAA bond ended at 8.20%, 5 bps lower than previous week levels of 8.25%.  
  • The major corporate debt issuances during the week were: Nabha Power issued 9.72% 3-yr (Sept 2015 – Call option) to raise Rs.300 cr. REC issued 8.23% 10-yr bond to raise Rs.1,925 cr. HDFC issued 8.40% 10-yr debt paper to raise Rs.500 cr. 
  • Reliance Industries issued 4.125% 10-yr bond to raise USD 1 bn. The issue was priced at 240 bps over 10-yr US Treasury yields. 
  • RBI ED G.Padmanabhan said that India plans to allow Euro-Clear settlements to only long-term investors in Indian bond markets. Padmanabhan warned against the financial implications of short-term foreign investors in debt market. He also highlighted the risks of creation of offshore bond market by allowing Euro-Clear settlement. 
  • SEBI Chairman UK Sinha said that the FII limit in the corporate bond market can be raised once the FII investment reaches threshold. Sinha also called for better recovery mechanism in the corporate debt market. 
  • SEBI has allowed re-issuance of existing papers by corporate bond issuers. The move is likely to prevent fragmentation problem and help the development of secondary corporate bond market. 
  • RBI notified the auction SDL papers worth Rs.18,150 cr on behalf of 17 State Governments.

Macro Indicators

  •  RBI fixed the rate of interest on FRB 2035 for the period 25th Jan 2015 – 24th Jan 2020 at 7.64%.
  •  India Fx Reserves reached a record highs of $322.14 bn for the week ending 16th Jan 2015.
  •  RBI issued additional guidelines on base rate computation methodology for banks.
  •  India’s CPI inflation stood at 5.00% in December 2014 as against 4.38% in November 2014.
  •  Monthly WPI inflation stood at 0.11% in December 2014, as against 0.00% in November 2014.

 Global Markets.

  • ECB kept the benchmark refinance rate unchanged at 0.05% and maintained the deposit rate and marginal lending rate at -0.20% and 0.30% respectively.
  • ECB unveiled quantitative easing as it announced bond purchases to the extent of EUR60 bn per month for the 18-month period beginning Mar 2015 – Sep 2016. Draghi said that the ECB will not purchase more than 25% of any single bond issue and 33% of instruments from a single issuer. He also ruled out seniority for the ECB held instruments over other investors holding.
  • Anti-austerity part Syriza was voted to power in the Greek elections. Alexis Tsipras was sworn in as the new Prime Minister of the coalition Government formed with the support from the Independent Greek party.
  • Bank of England minutes of the meeting denoted a unanimous agreement among the Monetary Policy Committee members to keep interest rates and asset purchase program unchanged. The members believed that there are fair chances of inflation dipping further in the first half of the year.
  • Bank of Japan maintained its monetary stimulus at JPY 80 tn in annual Government Bond purchases. BOJ cuts its CPI inflation forecast to 1% from 1.70% earlier on account of sliding crude prices.
  • Russia’s Credit rating was downgraded to junk at BB+ by ratings agency S&P.
  • China’s GDP growth for Q4 2014 stood at 7.30% unchanged from previous qtr, but higher than market expectation of 7.20%. The 2014 full year GDP growth for China stands at 7.40% which is the lowest since 1990.
  • IMF lowered 2015 world GDP growth forecast to 3.50% from 3.80% projected in Oct 2014. The 2016 growth forecast was lowered to 3.70% from 4.00%. IMF slashed forecasts for countries including Japan, China, Euro Zone and Latin America. The sharpest reduction in forecast was for oil exporting nations.
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