Liquidity: Stays surplus
Banks were taking precautions in lending today even as liquidity was in surplus as they are set for outflows in the market.
Termed rates, at which banks lend and borrow for their daily fund requirement, floated around 5.5-6 per cent. However, RBI mopped up around Rs 4,650 crore from the market today compared with Rs 12,000 crore on Monday.
Rates in the collateralized lending and borrowing (CLBO) market also remained above 6 per cent since mutual funds feared compensation from banks to manage liquidity in coming days.
G-sec: High volumes
Aggregate in the government securities market was at Rs 11,000 crore as most of the banks bought bonds in the beginning of the trading session and then gained profits. As a result, the profit fell first then rose during the latter half of the trading session.
According to dealers, most of the banks engaged in trading and floating portfolio in preparation for the government’s security auction to be held on Friday. The profit on the ten-year benchmark paper first fell to 7.64 per cent, but closed during the day at 7.67 per cent.
Prices of government securities showed a growth by 30-40 paise across maturities. Although, profits in the shorter end of the profit curve rose marginally after falling since the outlook on liquidity was expected to fall.
The long-term deed with the maturity of 30 years rose up by 72-75 paise
Tracking firm yields in the short term, the market expects the cut-off yield in the auction of 91- and 182-day treasury bills to move up by 4-5 basis points compared with the last week’s yield. The 91-day T-bill fetched a cut-off yield of 7.02 per cent last week.
OIS and corporate bonds: Yields rise
The concern on liquidity tightening towards the end of the week moved yields up in the overnight interest rate swap market (OIS).
While other maturities ranging from one year to five years witnessed firming up of yields by 2-3 basis points, in the three-month maturity, OIS yields moved up from 7.05 per cent to 7.15 per cent.
The possibility of liquidity tightening and resulting firmness in interest rates led banks to hit OIS deals in which they preferred receiving in floating rate of interest and paid in the fixed rate of interest.
The OIS market is a derivatives product based on the underlying of the interest rate on government securities.
There was brisk activity in the corporate bond market. The easing of yields in the three months to one year maturity that followed easy liquidity last week continued.
Oriental Bank of Commerce and State Bank of India associates raised funds through one-year certificate of deposits (CDs) at 8.60-8.70 per cent. CDs of private bonds were raised at 8.75-8.8 per cent, while foreign banks like ABN AMRO and Standard Chartered raised funds at 8.88-8.90 per cent.
Andhra Bank raised 10-year funds at 9.15 per cent. The triple-A-rated bond of LIC Housing Finance mopped up funds at 8.94 per cent for three years and at 9.14 per cent for 10 years.
Rupee: Ends flat
The spot rupee gained a fresh nine-year high of 39.21 after opening for the day at 39.22-23 to a dollar. This followed heavy selling of dollars by foreign banks on behalf of their FII clients, otherwise referred to as collective investments.
Later on there was massive intervention of RBI, which bought dollars in the spot market. There were no exchange deals by RBI to book the dollars at a future date.
Therefore, the annualized premia for the six-month and one-year forward dollars came down and closed at 1.44 per cent and 1.22 per cent as against 1.50 per cent and 1.20 per cent on Monday.
Global markets: Yen falls
The yen deflated to close at $109.51 since global funds bought dollars and sold the yen. The euro and the pound closed at $1.4714 and $1.9760.